Fintech focus: How to stay resilient during the downturn

Some companies have had to freeze or reduce their workforce. Others have backed out of the important IPO. Valuations and equity values ​​have also taken a hit, as the global economic climate continues to deliver bad news.

It is not easy to survive, let alone thrive, in such an unstable environment.

Attracting investors in a reluctant climate

Evidence of a clear strategy and good finances are two important ways fintechs can improve their chances of attracting investment – ​​despite the economic downturn.

Angel investor Patrick Kavanagh, who is also a co-founder of Atlantic Money and one of the first capitalists to back investment platform Robinhood, says the situation is very difficult – but fintech can help itself.

“While valuations flourished during the covid-19 crisis, the era of subsidizing unsustainable growth appears to be in the rearview mirror now. Fintechs are now literally paying for their previously stratospheric valuations, rapid expansions and loss of focus. They have been forced to tighten their belts, with many withdrawing job offers and laying off staff. Redundancy tracker TrueUp estimates there have been over 100,000 tech layoffs in the past five months.”

He continues: “In this risky environment, fintechs need to refocus and consider what will convince investors to loosen their wallets. They want to see more evidence that core economics make sense and business models that are easy to understand. The decisive factor is that investors want to see a clear path to profitability. Companies that also focus on customer segmentation and build targeted products to match are likely to be rewarded for their efforts.”

Leadership and robustness in fintech

A change of direction, as recommended by Kavanagh, requires managers and business leaders to reassess their strategies and change direction. This may involve looking at different ecosystem partnerships, putting a new rollout on hold, or even changing core mechanisms within the company to achieve a stronger business.

Daniel Harman, CEO and co-founder of Dark Square Capital, believes flexible thinking is key, as is a lean, agile approach. “With all startups, flexibility and patience are key. Fintechs have the added requirement of having to be FCA regulated in certain cases, which makes it more difficult to launch your product, promote/advertise and pivot, he says.

Harman notes that in the fintech space, it’s especially important to make sure managers have done their research and analyzed the target market properly. “You’re asking users to trust you with their finances, so I think customers are less forgiving than they might be in other sectors.”

Vivi Friedgut, CEO and founder of Blackbullion, agrees with Harman. But she says that cohesive teamwork and a strong culture are also key to surviving the storm.

“You need the ability to lead a committed, committed team. Having created that culture of purpose and inclusion from the beginning by bringing people into your vision, she says.

“Your talent is your momentum when you scale. It’s not about leading the hardest working team to achieve your goals or burnout. Rather, it’s about being creative with how you make your teams’ work lives great, fostering a culture of flexibility and autonomy so that your employees truly commit to your company’s values ​​and mission. Leadership is about getting people to want to be part of this scaling journey. Because, as we see, it is not an easy trip.”

Sector opportunities despite downturns

Despite the difficulties, there are areas that are flourishing. Fintech leaders can improve their chances of raising investment capital if they concentrate on these areas.

“I see an increasing number of investors putting more capital into carbon capture startups that aim to use various technologies for carbon removal,” said Michele Tucci, Chief Strategy Officer & MD Americas at Credolab. He goes on to say that it is only a matter of time before companies start using blockchain technology to keep track of carbon reduction, which also links the regeneration efforts of land managers to the companies that buy carbon credits.

Konstantin Zaripov, CEO of MultiPass, part of the Dyninno Group, comments on the payments space – citing it as an area that continues to receive a good amount of investment funding. “Payments have grown a lot recently and have a combined share of a third of the total funding received. Other sectors that have grown tremendously are Digital Lending (which has tripled), InsurTech (doubled), WealthTech (tripled) and Capital Markets (tripled).”

Finding a balance in unstable times

There is a fine line to walk when it comes to leadership, strategy and purpose. But it’s one that creates much more resilience – and the market will be stronger for it – once we emerge on the other side,” says Dima Kats, CEO of Clear Junction. “In all markets, the threat of recession is forcing many business leaders to become more efficient in terms of spending and budgeting – with the view that adopting a ‘leaner’ operation in these tough times will lead to a more resilient organisation.”

Kats points out that, like other industries, the recession is a challenge for players in the payment landscape. This is because a recession in the core affects real consumption, which is the base layer for growth in the payments industry.

However, he says: “There is still quite a lot of investment money available and opportunity for growth, but the reality is that during a recession investors take less risk and take longer to make investment decisions.”

He concludes: “I think the payment industry has a more nuanced outlook than current valuations suggest. In my view, there are many aspects of payments that can be more resilient in a recession than many investors expect, creating the potential for huge investment opportunities.”

Five resilient fintechs scale in a downturn

According to the latest data from CBS Insights, many fintech companies are still thriving in the market. Here are the top five fintechs to watch in 2023:

#1 Stripe – Although the online retail payments giant recently rolled back plans for its IPO, and has consistently refused to confirm its external valuation of $95 billion, it recently publicly offered its internal valuation – which is $74 billion.

#2 Checkout.com – the international financial technology company that processes payments for other companies, founded as Opus Payments in 2009, is headquartered in London. It recently received a $40 billion valuation.

#3 Plaid — the fintech company that facilitates communication between financial services apps and users’ banks and credit card providers hasn’t lost its way in the downturn, having recently received a $13.5 billion valuation.

#4 Brex – With a recent valuation of $12.3 billion, Brex has so far avoided financial problems. Headquartered in San Francisco, the US-based financial services and technology company provides credit card and cash management accounts to technology companies.

#5 Summary – SumUp is a global financial technology company headquartered in London that supports more than 3.5 million merchants in over 30 markets worldwide. The most recent valuation in June 2022 placed it at $8.5 billion.