How fintech leaders can drive growth in an economic downturn
The fintech industry has grown dramatically in recent years, providing businesses and consumers with the modern, accessible and affordable financial services they have long sought. Investment in the sector is also booming, with analysis by KPMG showing that UK fintech investment reached $37.3 billion in 2021 – a sevenfold increase from 2020.
However, it is the current economic environment that may dampen this explosive growth. We are witnessing rising interest rates, rising inflation, redundancies throughout the industry and declining consumer confidence. That leads many to raise the question: will this macroeconomic environment hamper the long-term growth of the fintech industry? It doesn’t need to. For fintech organizations looking to drive long-term growth and differentiation despite the current economic downturn, they need to turn their attention to their most important revenue driver: the digital product.
The battle for customer retention
During periods of economic downturn, organizations must focus on retaining existing customers, as acquiring new ones becomes more difficult and prohibitively expensive. At its core, retention is about creating habits. You need to understand how many users keep coming back to your product – and why. Historically, fintech apps and tools are known to have high customer acquisition costs and low loyalty rates. While the general app market has a retention rate of 35%, this drops to 16% for fintech apps. Finding new ways to increase customer loyalty remains a key challenge for the industry, and not just in turbulent economies.
Today’s users are inundated with apps, and understandably, this can mean fickle attention spans. In fact, the average app loses 80% of its users within the first three days. To prevent churn, organizations need to show users value immediately and during every interaction. But here’s the problem. It is still common today for fintech organizations – and companies across all industries – to launch products into the market with no idea what their customers are leveraging.
For most companies, the entire customer experience is a black box. This has created incredibly frustrating products, where instead of the technology adapting to us, we have to adapt to the technology. And with the exceptionally low retention rate of fintech apps, this is a huge problem. Financial institutions have invested millions of dollars in digital transformation and are now looking to understand the return on this investment. By investing in the product itself and leveraging data to better understand the customer experience, fintech companies can build long-term sustainability and differentiation in the market. Today’s fintech market is a battle for customer retention, and those organizations that find ways to become essential to their customers will win out.
Experiment-driven growth
During an economic crisis, it can be tempting to slow down the experiment, if not stop it altogether. However, fintech organizations should double down on this area. Experimentation creates crucial new opportunities for growth, and also helps teams understand which initiatives are not performing well. This knowledge empowers teams to end these projects faster and shift resources to more successful ones.
In the case of fintech startup ClearScore, the company was looking to leverage experimentation to increase conversions for its new paid product, ClearScore Protect. With access to critical customer behavior data, ClearScore was able to better understand how customers interacted with the products. By leveraging these insights, the company increased testing and experimentation by more than 400%. By experimenting with funnel analysis, ClearScore was able to see how users navigated specific paths, and identify problem areas where users tend to drop off. The team also found that users within certain economic and demographic groups were more likely to subscribe, and that users who completed certain actions in the free product were more likely to upsell. With this insight, ClearScore was able to position the product to specific users and refine the message to encourage conversion. Within 12 months of launching ClearScore Protect, the team doubled its subscription rate.
Simplification and scaling in fintech
We cannot predict with certainty what the macroeconomic landscape will look like in the coming months and years. What is certain, however, is that all fintech organizations must learn to do more with less. Fintech leaders must focus on simplicity: the problem they are solving for customers and what their solution enables customers to achieve. There is no room for overcomplications. Too often, business leaders don’t want to accept that simple ideas are the way to go, and instead try to make solutions more complex. But in the midst of an economic downturn, it’s best to keep things to the essentials. Simplicity always scales better than complexity.
Today’s market presents many challenges for the fintech industry. But there are many ways the sector can set itself up for not just retention, but growth. To create long-term differentiation and meet evolving customer needs, fintech companies must continue to invest in their product, and not just in times of scarcity. In the fintech industry, there will always be larger macroeconomic trends at play, whether it is changes in consumer behaviour, new regulations or rising interest rates and inflation. These frequent changes require companies to set flexible strategies, take risks and learn from their experiments. By listening to customers’ needs and focusing on the problem your organization is solving, fintech startups will be able to grow with their customers, even in an economic downturn.
About the author: Daniel Bailey is VP of EMEA at Amplitude. Formerly VP of Zendesk, he now leads teams that help businesses in all markets build successful product and customer experiences through Amplitude’s cross-platform, real-time data solution.
