Fintech is slowly becoming profitable

As an industry, fintech has typically been known for its venture capital-driven growth, but tougher economic conditions and the transition to higher interest rates

Image source: Pexels/Monstera

Fintech profits are the unlikely trend of 2022.

Amidst crypto chaos, a cost of living crisis, covid unrest in China, soaring inflation and a dozen other headwinds, more and more fintechs seem to be turning profitable as the year goes on.

Of course, there have been many other trends that point to a conflicting sentiment.

These tougher times for venture capital-backed tech companies, such as falling public market valuations, downturns for established scale-ups and tens of thousands of layoffs.

However, prompted in part by the change in the macro economy, some notable names in the fintech space have announced profitable forecasts or, in some cases…even full-fledged actual annual profits!

Last week it was ClearBank, the five-year-old cloud-based clearing bank based in London, led by CEO Charles McManus.

ClearBank, which counts other fintechs such as Coinbase, eToro, Raisin and Tide among its 200 clients, says it turned a profit in October on a monthly basis as 2022 year-to-date revenue reached £45.4m, thanks in part to deposits of £3bn pound. it’s enough.

Of course, there are a number of caveats. It’s only one month, Clear Bank’s accounts are currently unaudited, etc etc – but the news undoubtedly speaks to something of a growing trend.

OakNorth, Zopa, Starling Bank, Wise, LendInvest, Funding Circle, Allica Bank, CreditShelf and Zilch have all either announced profitability in one form or another this year.

There are also many reservations among the profitable group regarding what profitability means and how sustainable the profit is in the long term.

Revolut, one of the biggest fintechs in Europe, maybe even the world, may even be moving towards a profitable footing. Founder and CEO Nik Storonsky said earlier this month that the company was profitable.

“We’re profitable now, and we were profitable last year, too,” Sifted said.

Although Revolut has not yet disclosed its accounts for last year.

For Starling Bank, which in July said it rose to a pre-tax profit of £30m for the financial year ending March 31, 2022 from a pre-tax loss of £31.5m the year before, the growth came from a boom in lending , up 73 percent for the period.

How sustainable the drivers of profitability in 2021 are this year – and over the next 18 months or so – as recessionary pressures build and longer duration lending, particularly to SMEs, becomes much more difficult remains to be seen.

Lenders usually back off during such times.

We must also take fintech’s profitability into account.

OakNorth’s profits rose 73 per cent last year to £134m, also driven by a record year for lending. This is an incredible growth rate, but the profits of big banks are also growing and are huge.

HSBC, meanwhile, booked $3.2 billion in profit in the three months to the end of September, a cool $700 million more than forecast. Net interest income, the difference paid to savers and earned from borrowers, was $8.6 billion for the same period.

Much of this is of course linked to rapidly increasing interest rates in 2022.

Of course, we have also covered a number of companies struggling to raise funds, looking down rounds, exploring sales, or simply going bankrupt

Nevertheless, there is no doubt that an underlying focus on sustainable business models has become a dominant fintech trend in 2022.

And it’s starting to pay off…for some.

For fintech in 2023, it seems to be a bumpy road ahead. But there is no doubt that hard work and financial discipline as well as a continued focus on growth are starting to pay off.