3 recession-proof fintech categories poised for success

Of Shawn Conahan, Revenue Officer, Wildfire Systems

Is the US headed for a recession? Surely one can simply look at the prices of everyday items to know that things are less affordable. While that in itself may not mean we can expect a general downturn, many of us may feel like our dollars aren’t stretching as far as they once did.

Time will tell whether consumers’ anxiety about affordability will turn into a complete withdrawal of consumer spending. All the major stock indices are well away from their historic highs, and inflation in the US reached a 40-year high earlier this spring. Meanwhile, the private markets are doing well. In the first quarter of 2022, over $82 billion flowed into early stage companies, marking the fourth largest quarterly total on record. A sluggish economy is a pretty good time to start a company, with their long success horizons – 5-10 years on average – enabling them to generally survive the volatility of public markets.

But there is at least one feature of an economic downturn: Some startups actually do even better because of a recession. Startup founders are looking to solve problems, and if recessions do anything, they create problems. This means that recessions can actually be HUGE for some companies if they solve financial problems for consumers. Two examples from recent history are Uber and AirBNB. Both were started during the last recession, and both enabled efficiency and financial benefit for both buyers and sellers in their respective fields.

It’s also hard to imagine Groupon doing as well as it did had it not been founded against the backdrop of the financial chaos that began in 2008. The reason for this is simple: when times are good, people absolutely don’t mind save money, but when times are tight, they will certainly seek out opportunities to save money, and they will do so in droves. The business model of all these companies is pretty straightforward: Buyers get a better deal while sellers get more revenue. What better time to offer such a value proposition than in a time of economic anxiety?

With that said, here are 3 fintech categories that provide a financial edge, which is especially useful in a down economy:

1. Debt processing. With debt spiraling out of control for many people, companies that address this issue are a welcome addition to consumers’ arsenals for making financial gains. An example is Acorns*. Not only does Acorns help customers save for the future by rounding up payments and then automatically investing the difference, they also recently acquired Pillar, which uses AI to help consumers develop a plan to get out of student loan debt.

Tally is another useful app that helps customers pay off credit card debt faster, using an algorithm to target consumers’ highest interest cards first. And finally, Caribou helps consumers quickly and easily refinance their car loans and find better rates on car insurance. With the cost of gas in the stratosphere, helping to save money on transportation is a big win in a tight economy.

2. Resale. “Recommerce” is the term that describes, more clearly, selling your stuff to others when you’re done with it. Supplying goods is in high demand right now, and companies like Decluttr, Twig and Responsible are all enabling the circular economy in their own ways. Decluttr makes the process of selling old technology like mobile phones and tablets easy. Twig’s resale platform allows sellers to “instantly” turn their items into cash (value is stored on a Visa debit card.) Finally, Responsible’s niche is for buyers and sellers of streetwear and cult fashion brands.

Regardless of niche, resale platforms like these all benefit both buyers and sellers in a tough economy, enabling a marketplace that gives buyers a better deal on the “gently used” items they buy, while putting extra cash in the pockets of sellers .

3. Access “Found money”. Even though prices have gone up significantly, people still have to buy things. And when customers decide to spend their money, the companies that help consumers find ways to save or earn a little more flourish. One such type of company that helps customers “find extra cash” when they shop offers cashback rewards for online shopping.

You can hardly turn on a TV these days without hearing Samuel L. Jackson proclaim, “You don’t have to be a Capital One customer to get cash back from Capital One Shopping.” The popular program offers consumers a way to earn cash back and find coupons while they shop. As another example, PayPal acquired Honey to offer the same shopping rewards feature to its customers. And now, seeing the value to consumers and the effect on loyalty it creates, many other banks and credit card issuers are rushing to offer a competitive product to their customers. After all, nothing says “I love you” like free money, and consumers have come to expect such love from their financial institutions. But these banks cannot all build the functionality themselves. That is why many banks and financial institutions work with companies like Wildfire. We operate these types of programs with a white-label platform that enables businesses to offer shopping rewards to their customers.

Another type of fintech in the “found money” category is one that helps customers maximize credit card benefits and other savings while shopping. An example of this is Kudos*. Since credit card rewards are often tiered or contingent, customers don’t always know which card will best maximize rewards. Kudos suggests the best credit card to use for a customer’s purchase while shopping. Another example is ScribeUp*, a unique subscription fee control service that helps consumers find and cancel unwanted subscription bills.

Many innovative fintechs have launched relatively frictionless ways to help customers access these additional methods of saving or earning, and to easily make their money go a little further. Since consumers are always going to spend, regardless of the economic environment, the companies that lean into the curve to help budgets stretch further are particularly well positioned for the future. Some of the startups in these categories may even be the Ubers, AirBNBs, and Groupons of their generation. As economic uncertainty persists, these companies and other innovators like those who use technology to find ways to stretch consumers’ budgets will likely continue to gain traction, so let’s wish them the best of luck!

*Acorns, Kudos and ScribeUp are Wildfire Systems partners

About the author

At Wildfire, Shawn develops strategic partnerships with major finance, banking and fintech companies to enable the creation of new revenue streams and modernize their customer experience to position them competitively for the future of banking and money. He has been an entrepreneur, executive and investor in the wireless, technology and Internet industries for over 15 years, having previously built and sold three companies. His industry experience ranges from digital media to wireless technology to big data where the common thread has been building platforms with broad applicability.