Regulatory challenges more prominent in the eyes of fintech industry leaders this year

Regulatory challenges have doubled in importance for fintech leaders from 2021 to 2022, according to the results of a survey of 100 industry executives released Monday.

Nearly a third (32%) of fintech company executives saw regulatory challenges as the biggest threat to their business in the first quarter of this year, compared to 16% in 2021, according to the Fintech in 2022 survey from Alloy and Gartner Peer Insights.

Now, nearly half (47%) of respondents called regulatory issues their No. 1 concern.

It’s easy for industry leaders to see the writing on the wall: survey data was collected from August 2 to October 22, after several US senators first put big bank-owned fintech Zelle under a microscope over fraud concerns. Shortly before the report came out, The Treasury Department declared a need for more oversight of the fintech sector and bank-fintech partnerships.

Explains the rapid growth in fintech leaders’ prioritization of regulatory challenges, Alloy general manager Charley Ma said that before this year, “Regulators were kind of seen as moving very slowly, and they’re more interested in regulating big banks and [financial institutions].” Regulators, he said, “have moved much faster this year, for example with crypto, and everything in crypto will touch fintech.”

Noting the “spectacular failures in the stablecoin space, like Luna and Terra,” fintech and crypto both have a “big, flashing red light for regulators to watch,” Ma said.

Although 28% of respondents cited crypto as “the most exciting thing happening in fintech next year,” compared to 16% who cited buy-now-pay-later, 11% cited software-as-a-service or payment-as- en- service, and 5% mention embedded finance, 58% of respondents reported that they are less optimistic about crypto than they were in 2021.

Ma guessed that number would be even higher if the survey was answered now after the fall of bankrupt crypto exchange FTX.

Macroeconomic changes over the past year have had a profound impact on the priorities of fintech companies.

While public fintech companies have seen their share prices cut at the knees — SoFi is down from $15.05 on Jan. 3 to $4.98 on Nov. 23, and PayPal is down from $194.94 to $80.28 for the same dates — the challenges of private fintech companies have been. evidenced by the double-digit percentage of layoffs at places like Brex, Chime, and Stripe.

Despite the recent layoffs, private fintech executives are optimistic about the second half of 2022, with only 3% of companies expecting to reduce headcount. Most (81%) of the respondents expect to increase their company’s employees at least somewhat in the second half of this year.

While executives during last year’s bull market were largely focused on fundraising, more than half (53%) do not expect to raise funds in the near future – although some (16%) say this is due to a lack of investor interest, most (61%) are okay with that, because they don’t need new funding.

Fintech companies instead plan to spend the second half of this year focusing on core priorities such as product development (49%), profitability (35%) and partnership development (30%). And they continue to focus on the same markets as last year, with 40% primary targeting millennials and 37% primarily target low-income consumers.

“It’s clear that private equity firms in particular have taken a more defensive stance for now — delaying new funding rounds, planning for modest (rather than explosive) growth, and addressing regulatory risks,” according to Alloy’s report.