Fintech: the Rise, Fall, and Potential Re-Rise

Fintech, short for “financial technology,” refers to new technology that aims to improve and automate the delivery and use of financial services. Ultimately, its purpose is to help business owners, companies, and consumers manage not only their financial operations but also their lives. Fintech comprises software and algorithms, and it can be found on computers and smartphones.

The fintech industry has been immensely successful and has achieved its aims. However, in recent years, fintech companies have come under pressure. Sometimes, the technology fails, causing consumers and partners to lose faith in some companies. Businesses also have to wrestle with economic turbulence, which has led to a lack of funding and pressure on fintech companies to cut costs.

Below is a look at what has made fintech successful, what fintech companies must do to keep things going, and what might happen if the fintech bubble bursts.

Why do people love fintech?

One of the big reasons fintech has exploded is that it has taken the latest technology and applied it to an unadventurous industry. The startups that entered the space challenged and disrupted the industry, creating a lot of excitement, and lots of investors wanted a slice of the pie. According to a report from McKinsey and Company, investment by venture capitalists increased from $19.4 billion in 2015 to $33.3 billion in 2020. The following year was even better: funding jumped to $92.3 billion as world events triggered an acceleration in digitalization.

A focus on customers

It's not just the disruptive nature of fintech that has gotten everyone so enthusiastic. Fintech has shifted the focus of the financial industry by revolving more around customers. Fintech apps focus on user experience. As a result, they’re easy to use, simple and convenient.

One example of convenience is the adoption of fintech by iGaming companies and other businesses. These companies have incorporated fintech, such as PayPal, into their operations to provide players with safer, more convenient ways to credit their accounts and receive winnings.

This spike in growth has impacted the niche in unexpected ways such as third-party review sites like Casino.org springing up to cater to the reviews needed for PayPal and other payment method casinos. This shows just how many avenues fintech giants have expanded into, and asks the question about what other niches they can work their way into.

Keeping fintech safe

As mentioned, things have gotten rocky for fintech companies, as funding is thinner on the ground and taking longer to come in. But there is hope on the horizon as companies adapt to a new economic reality, one creating value opportunities for them. The forecast that between 2022 and 2028, revenues will have grown three times faster than in the banking sector is further reason to be cheerful.

Still, fintech can’t rest on its laurels and wait for boom times to materialize again. There are things it must do to protect itself and remain sustainable.

Get strict about costs

The days everyone was throwing every cent they owned at fintech companies are behind them, which means companies must manage costs more closely. This also means reviewing how they operate and becoming more flexible.

Focusing on the core business

Growth is big in the minds of fintech companies, but for now, they must focus on their local market and ensure they have a healthy core business before looking at expanding. They can do this by tailoring their value proposition to the local market.

Shrink to grow

A shift from the “growth at all costs” focus of fintech to a more sustainable level of growth will entail companies divesting themselves of less profitable parts of the business. By letting go of low-growth and unprofitable elements, the companies can invest the money previously allocated to them in more successful areas of the business.

But what if the fintech bubble bursts?

When it comes to being accountable to customers, fintech companies are less so than banks and customers can lose out, especially if the company files for bankruptcy. In this regard, a bursting bubble might not worry them as much.

The fact that some areas of fintech aren’t as regulated as others would, in the event of the fintech bubble bursting, likely see some changes in the rules and regulations around fintech. There would be calls for more transparency, for sure.

Fintech companies might also have to look at some of the technology driving their services. Experts have noted that often when companies market themselves as innovators or as highly disruptive, they’re relying on outdated systems that the companies dress up at the front end to appeal to consumers. A lot of companies also rely on old-fashioned lenders, despite supporting banking products presented as new.

Fintech has been an exciting, disruptive technology that has taken off, but in recent years, it has fallen on harder times. Although it’s not over for fintech companies, they’ll have to change their approach to remain sustainable. If the bubble bursts, there will be calls for a lot more transparency.