What can we expect in 2023
After a decade aptly described as the “golden age of fintech”, last year saw a significant decline in global FinTech investment (from $238.9 billion in 2021 to $164.1 billion in 2022). The industry, as one can easily imagine, was rattled. The media called it ‘FinTech’s first test’ and ‘the great FinTech accounting’. They all agreed that the so-called ‘easy money’ had dried up.
Despite the catchy headlines and gloomy predictions, we will see plenty of investment opportunities in FinTech companies in 2023 – especially among those embracing new technology and AI. But there will be new factors for the companies and investors to consider.
First, let’s address a key factor: market volatility around rising interest rates, which undoubtedly played a role in last year’s investment slump. This unpredictability looks set to continue due to market uncertainty and investors are likely to be more cautious with their investment strategy this year rather than trying to make up for lost time. However, the addressable market opportunity remains huge as customers continue to seek alternative, agile, digital solutions for financial services – so there will be no let-up in the number of new FinTechs emerging seeking capital.
While capital is still available, discerning investors — some of whom have been stung by past FinTech investments at (what now appear to be) inflated valuations — will be more cautious about writing checks, which in turn means that not all startups will get the financial support they seek.
Yes, there will undoubtedly be consolidation – there are too many FinTechs in specific market segments, so there will be room for the more successful players to acquire competitors and accelerate their growth/build capability/etc. The key to success will be what differentiates one from the other – and who does it best from the customer’s point of view.
Interestingly, I have noticed how customers become a central focus for Fintechs as they find solutions and engage with their needs. This year, the customer experience will be the primary benefit – it will no longer be “the bank’s way or the highway”. Fintechs must deliver the solutions their customers and prospects need and want. This will ultimately result in greater customer choice, further enabled by the growth of technologies such as AI.
Finally, and this is always the sting in the tail, there will be more regulation. We already see it in the less regulated markets such as crypto and Buy-Now-Pay-Later (BNPL). This trend will only increase as regulators look to crack down on financial crime once and for all. Regulation, no matter how painful it is for customers, is itself a market disruptor. It creates new customer pain points for nimble FinTechs to raise capital and address.
While there is no reason to doubt that FinTech remains in a good place, it is good to remember that the wider sector is still facing record inflation. Investors being smarter with their investments should not be a cause for concern; just an opportunity for Fintech companies to embrace where they can best move forward and find ways to differentiate themselves from the competition through CX and secure investment. If the ‘easy money’ has dried up for now, good companies with viable products will still get the support they need to succeed, making 2023 look less like a year of reckoning and more like an age of sanity.
