It was with some surprise then, when the global financial crisis struck, that many of the startups that had seemed so rebellious and innovative were found to be just as traditional as their incumbent bank rivals in terms of how they operated. The startup ecosystem saw this as a wake-up call; if those (often younger) companies couldn’t get it right, the banks certainly weren’t going to. Consequently, there’s been a significant focus on developing more cohesive and innovative solutions from the fintech sector in an effort to prove that it really is “the future of banking”.
In recent months, interest rates have been hiked by the Federal Reserve, and this has caused a lot of fintech companies to experience a slowdown in their business. This raises the question of whether fintech as a whole has lost its momentum. However, even though this sector is slowing down, it is still an important part of the economy and will continue to grow in the future.
One of the biggest challenges facing the startup industry at the moment is a lack of funding. Mercedes Bent, Victoria Treyger and Jillian Williams from Lightspeed Venture Partners, Felicis Ventures and Cowboy Ventures respectively all observed that although there are opportunities in the market, it’s hard to find money to back them. The panelists attributed this partly to the current economic climate but also cautioned against getting too discouraged: they pointed out that there have always been difficult times in tech startup history and eventually things have usually turned around. Despite these difficulties, they all remain optimistic about the future of technology startups.
In recent years, startups and their backers have faced a series of challenges. These challenges stem from over-promising and under-delivering during the pandemic, as well as more general concerns about the state of the economy. Fintech is clearly doing well during these tough times, but Covid has faded into the background.
“Both SoFi and PayPal have been down for much of the day, with some users reporting that they are unable to access their accounts whatsoever,” said Albergotti. “It’s not clear what caused either site to go down, but it’s likely a combination of technical problems and widespread outages.”
On the other hand, Williams said that fintech startups are facing some challenges right now. One challenge is that there is a lot of competition for limited resources, she said. Additionally, many fintech startups do not have a long history or track record of success and are “still trying to find their footing.”
Williams said that although issues need to be addressed, such as stricter underwriting standards and more rigorous business models, the underlying usefulness of many social media companies is still there. He urged caution in assessing their worth before they have reformed themselves, arguing that these companies still hold potential for users if they can fix their shortcomings.
In response to the Consumer Financial Protection Bureau’s release of a list of banks it has identified as engaging in deceptive and unfair lending practices, Williams said he believes that the banks are starting to learn from their mistakes and are taking steps to improve their practices. He noted that the list includes some of the largest and most well-known banks in the United States, but that there are likely many smaller institutions guilty of similar behavior.
A lot of people within the financial industry are worried about what the future holds. Credit and lending have been hit especially hard in the past few years, which has lead to some very large losses for companies. This is likely to continue for a while, as interest rates continue to rise and more people lose their jobs.
The fledgling fintech industry is likely to see most casualties in the near future amidst an ongoing recession, as larger organizations have more resources to cushion themselves from potential losses. Despite this challenge, some smaller startups are still likely to thrive given their agility and risk-taking mentality.
Bent seems to suggest that despite the headwinds faced by U.S.-based fintechs, organizations outside the U.S. are flourishing due to the lack of competition in their respective markets. He suggests that this is likely because there were few viable alternatives when these companies first started up, paving the way for future success.
In the U.S., there is a high adoption of fintech and wealth management services, whereas in Asia, they are actually much higher in lending and their consumer fintech services. With so many different countries to explore, it just depends which country you’re in and what type of services are offered.
The day Treyger left her job at Kabbage, she felt an intense feeling of relief. “When I say relief,” she said, “I mean it was like a weight had been lifted off my shoulders.” She understood that leaving her finance job would allow her to focus on something she loved more–finding new ways to support small businesses. So when she received an email from a VC firm asking if they could interview her for a role as a venture capitalist, Treyger didn’t hesitate. As it turned out, the company was perfect for Treyger and the VC role fit well with what she wanted to do next in career: help businesses become more innovative and adaptable in the rapidly changing economy.
One of the ways that CEOs and CFOs mitigate a downturn is by cutting back on expenses not critical to their company’s survival, such as research and development. This often results in layoffs of innovative employees, as these areas are eliminated from the budget. In this way, innovation arms can be cut, holding back companies from recovering quickly from a recession.
If credit cards and other forms of payment are becoming more difficult to use and fraud rates continue to increase, the fintech industry could see a large amount of growth in the next few years. Companies that are able to build products that improve efficiency and make payments more secure will be in high demand. CFOs should keep this sector on their radar as potential growth opportunities for their companies.
Launching a new fintech company can be daunting and expensive, but it’s also an exciting time to be innovating in the space. With so much innovation happening at both the startup and regulatory levels, it’s important for founders to remain up-to-date on trends and developments. This was clear during yesterday’s conversation between Jamie Dimon and Jack Ma, where the CEOs discussed how blockchain may soon play a role in banking. While regulation will continue to play a big role in this industry, talent will also be critical for success. In today’s competitive landscape, attracting top talent is essential for companies seeking to stay ahead of the curve
