What does it take to build a successful Fintech Post-2022?

Ivan Maryasin, co-founder and CEO at Monite.

Capital is not cheap anymore. Investors are feeling the pain of the fintech gold rush in 2021, when capital inflows reached $131.5 billion globally – nearly three times the $49 billion invested in 2020.

As the capital environment has become more difficult, fintech startups have naturally become more vulnerable. Down below are common and painful. Klarna is a dramatic example, forced to accept a valuation in July 2022 of $6.5 billion, down from $45.6 billion just 13 months earlier. The damage is across the board. Andreessen Horowitz (a16z) says valuations of listed fintech companies collapsed from 25 times forward earnings in October 2021 to four times forward earnings in May 2022.

The landscape today looks very different from a few months ago. Vision and growth potential were king in 2021. Today, investors have changed their requirements dramatically. They want to see solid unit economics, ROI-oriented cost discipline and a clear path to profitability. As the a16z authors note, “Every other blog or tweetstorm seems to offer the same general advice: save money, extend runway, shift from focusing on growth to focusing on efficiency.”

The influx of capital in 2021 means that there is much more competition around. Any niche that a fintech managed to identify has been quickly copied by several likes. This intensity of competition has made growth more expensive, with the cost of acquisitions increasing every year. And it’s even harder to get the capital to drive those costs unless you can clearly demonstrate that the associated returns are compelling.

Consolidation is starting to happen, but there is much more to come. No one can say for sure where the investment and start-up scene is headed, but we know for sure that it won’t get any easier out there for start-ups in the short term.

But this article is about how to survive, not how to be defeatist. With that in mind, here are some best practices I think fintech leaders need to adopt in 2023 and beyond.

1. Product-market fit (PMF) is no longer enough.

Yes, you still have to find it, of course. But then you have to build on it and add new value. When capital was cheap, profitability was a lower priority, and lower competition meant that companies could continue longer to rely on the visionary effects on investors of a viable PMF.

But now much more is required to achieve sustainable growth and remain investable. When your startup is pre-PMF, your focus is naturally on achieving PMF. Once you get there, that means you have a solid user base and good traction on the base product. This user base is a great resource for increasing value and income tenfold. But now it’s up to you to be very explicit about how you’re going to achieve it, in the context of your roadmap.

Revolut has done a fantastic job in this regard. Soon after hitting PMF, which was focused on reducing foreign transaction fees, it added merchant, premium and junior accounts, a “metal” card, insurance, personal loans and other features. Based on their report from 2020 to 2021, Revolut’s average revenue per user increased by more than 700%!

As Revolut demonstrates, super app strategies change the game. So why are there so few adopters? Where are the great super apps outside of China? There is certainly a lot of low-hanging fruit available. Take retail banking: Why don’t all B2C banks have integrated commerce already? Built-in APIs make it a quick win, and yet there are players out there who haven’t taken advantage of it. Given the demand from investors for neobanks to generate new revenue streams, this is unlikely to be sustainable. If fintechs don’t get on board soon, they may not survive much longer.

2. Fintech fintech leaders must get faster or risk being left behind.

We’re all used to the slow pace of corporate sales cycles. Surprisingly, startup sales cycles are often not much shorter. Even though the capital was cheap and the competition reasonable, taking years to make decisions to add the superapp value we discussed above wasn’t too much of a risk.

Abundance of capital created complacency, which meant that there was a lack of urgency. Many in these companies were unmotivated to bring in new projects and integrations, which in some startups and bank innovation departments were seen as unnecessary noise that was never prioritized.

Organizations need to have people on board who can quickly validate and assess solutions and get them on the road map. Time, as capital, has become incredibly expensive!

3. Managers must stop spending development resources as if it’s still 2021.

With the latest VC infusions safely stored in the bank, startups got used to feeling like they could just build more new teams and hire hundreds of people to build just about anything—whether it was in their core focus area or not. Now we see cuts and hiring freezes. It’s a healthy shift towards profitability tracking and optimizing team size and costs. And it teaches us where to focus: the core product.

So how does that match up with my first two points of offering value adds and building them quickly?

If 2022 brought a crisis and associated shift in mentality, it also brought the opportunity to deliver amazing things to customers without building them in-house. Today, you can embed just about anything – from bank accounts to lending, trading, payroll or full financial management/ERP functionality. Vendors who create these APIs invest significant time and money into creating a sophisticated product so you don’t have to. And you can go live in a few weeks and speed up revenue delivery and value creation without increasing your team size.

In all this, you must not lose sight of the main vision. The main goal is to have good income and become profitable. Once there, you can become a viable mid-sized business and be in a much better position to raise the money from equity investments that will be needed to scale globally.

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