The last decade has been a boom time for fintech startups, but 2022 has seen a rude awakening for the sector, as a combination of rising interest rates and inflation has seen the market capitalization of listed firms fall by over 75% since July 2021. Private firms have fared no better, with darlings such as Klarna and Wealthsimple announcing massive redundancy rounds.
A recent report from the Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School explored nearly 1,500 fintech platforms and suggests that the picture is perhaps not quite as dire as it might otherwise appear. Indeed, the report shows that all verticals have been growing at a quicker pace than in December 2020, with this especially so in retail-facing fields.
“Based on the unique empirical dataset collected, this report highlights the resiliency of the global fintech industry during the pandemic, driven by the growth of sectors such as digital payments, digital lending and enterprise technology provisioning in key geographies,” the researchers explain. “It also points to the potential of digital finance to advance financial inclusion and serve millions of unbanked and underbanked populations and MSMEs around the world.”
Robust growth
The researchers believe that those firms operating in areas that had stronger lockdown measures seemed to grow fastest, especially if they were operating in retail-facing fields.
This apparent success could have important implications for financial inclusion, as the research finds that many of the clients of fintech firms are from groups that have previously faced challenges accessing financial services. These groups include low-income households, SMEs, and women. Indeed, the report explains that the proportion of clients who are either women or from low-income households is over 50% for many fintech firms.
“Fintech firms are transforming the financial sector by driving innovation, introducing more competition and expanding access to financial services,” the researchers explain. “The survey indicated that fintech firms have served women, SMEs and low-income households—people who have traditionally faced challenges in accessing financial services.”
While firms across sectors have struggled with the financial climate during 2022, the report suggests that fintechs seem to have steadier revenue streams to fall back on than many startups. The report doesn’t cover whether this revenue is sufficient to account for both rising costs and a reduced willingness among investors to keep pumping money into loss-making firms.
Despite this, firms report that they’re focusing their attention on areas such as cybersecurity in the year ahead, and also hope that regulatory support can continue to improve via things such as faster licensing processes for new activities or less burdensome supervisory requirements.
Overall, it promises to be a challenging period for fintech firms, as indeed it is for startups generally as the VC taps appear to have been turned off. In a Schumpeterian survival of the fittest, it will be interesting to see just who makes it through to 2023 intact.
