Fintech will not be derailed by recessions

Fintech will survive the current economic challenges – it always does. But to reach its full potential, it needs strong compliance and regulation to ensure trust, writes Dima Kats

We have faced what feels like an onslaught in recent months: rising inflation, the cost of living crisis and the ongoing uncertainty surrounding Brexit created a snowball effect of economic challenges weighing heavily on the country and stifling growth.

In short: we are nervous and it shows. Wary of sticking their heads over the parapet, investors and businesses alike are playing it safe. We see this reflected in the lack of investment in venture capital in the UK, which fell by 30 per cent last year.

The difficult ongoing geopolitical situation has also put roadblocks in the way of growth. Sanctions are often made through the financial industry, and the global economy in the second half of 2022 saw a significant drop in investment in fintech as geopolitical tensions rose. Along with the collapse of the crypto exchange FTX, it fueled skepticism in the industry. But tough times call for innovators and quick decisions.

The AI ​​frenzy is just one path that has swept through all industries and, for fintech, will drive the development of more competitive solutions. AI will revolutionize the financial sector: it can identify fraud by monitoring customer behavior patterns, customize the customer experience and provide data-driven insights into the market to help businesses make decisions.

Globalization also plays a big role in showing how useful fintech can be. Like the rest of the world, Africa’s digital payments industry has boomed in the last couple of years, and real-time payments are on the rise. Nigeria leads the top ten global real-time transaction rankings in absolute terms, ahead of the US and Japan. The continent’s ecosystem is growing; last year it defied the global trend of decline and saw $5.4 billion raised for startups in more than 975 deals. The remittance industry will see itself grow with increasing cross-border payments as Africa keeps up with innovations this year.

However, regulation must take precedence as fintech works to restore trust. The Bank of England is considering a digital pound – “Britcoin” – to adapt to the way some consumers are changing their payment methods. A digital central bank currency could bridge the gap, as cash use continues to decline.

In the private sector, stablecoins will help minimize the volatility typically associated with crypto. Designed to have a stable value, stablecoins are typically pegged to a fiat currency, such as the dollar, and are typically used in decentralized finance for transactions.

The industry only works well if it has strong compliance, and right now we have an opportunity to raise the bar. This year has started with a new set of challenges to overcome, but if the past is anything to go by, diversification is the industry’s modus operandi in difficult times.

It is important to remember where we are from where we have been. Growth is not always fast or linear.

Monzo, Starling and Revolut all started around seven years ago, but are only now seeing operational profitability. Similarly, waves of recession have slowed but never derailed progress in fintech.

Rome wasn’t built in a day. This fintech winter will see more solutions and innovations this year as we continue to push for growth and progress.