Analysis: Fintechs need to get back to basics and forget the flashy stuff
Fintech firms in the UK have long driven new products trying to change the game in financial services, but as investment dries up in the face of a recession, they need to go back to basics, writes Lyle Wraxall.
With the World Bank’s warning of global recession and the aftermath of FTX’s collapse still haunting the sector, it seems 2023 is the year for fintech to get serious.
Instead of flashy products and innovations, operators in this space should concentrate on building out solid, sustainable foundations, so the sector can grow and thrive in the future.
This means ironing out the industry’s relationship with increasing regulation and expanding the range of services fintech offers to established businesses.
Compliance software and subscription billing solutions may seem less sexy than new blockchain or AI technologies, but providing smart, functional solutions to every day challenges may be a more rewarding route for ambitious businesses.
One standout industry trend is a greater focus on regulation technology and compliance solutions. One report forecasts more than 200 per cent growth for this tech over the next four years, with global spend rising from $68 billion in 2022 to $204 billion by 2026. This is a result of the demand from businesses grappling to deal with shifting regulation, and responds to the increasing regulation of the fintech sector itself.
Developing effective tech-driven solutions for perennial issues could be a good move, even if to the untrained eye the work is less headline grabbing. Even giants of the fintech world like Revolut and Klarna are looking to traditional banking for new ideas, including interest-bearing services.
In the face of global economic challenges, interest rate hikes, and job losses in the tech sector, it is an unsurprising but sensible move.
Although economic instability poses a new set of challenges to the fintech sector, which has flourished in an environment of easy money, it also opens up opportunities to meet increased demand for products which encourage reliability and security. Fintech firms could benefit from providing companies in services sectors, such as insurance or mortgage-lending, the tools they need to navigate an adverse economic environment.
Corporate venture capitals at European financial institutions are still investing heavily in fintech, and many firms want to work with established financial institutions and businesses to expand into new markets, extend client networks and access industry and regulatory knowledge.
For example, in the Isle of Man, it’s existing strengths and expertises in financial services and e-gaming are being approved by new fintech firms. Instead of trying to create the next glitzy gamechanger, the focus has been on everyday challenges such as know your customer protocols and digital identities.
It might not immediately blow people’s mind, but it can create a much stronger backbone to see the financial services industry through a period of instability. Succeed in the basics, and it may just make these firms the future of their industry.