What next for fintech? – Maddyness UK

This negative trend has been reinforced by recent events, such as Credit Suisse’s near-collapse and the fall of Silicon Valley Bank, which have made a difficult situation even worse for fintech. External funding is essential for growth and scaling; even at the top level, only a fraction of Europe’s largest scaleups actually report turning a profit. It would be easy to look at the sector and predict a crisis – but you shouldn’t.

While the decline in fintech funding may sound like a bad sign, it can serve as a wake-up call for financial sector startups. Less funding means more competition, and more competition means greater innovation. The last few years may have been bright days for fintech funding, but all that investment did not lead to the level of progress and invention that we had hoped for after PSD2 was implemented in 2015.

To grow and scale in a low-funding environment, fintech startups will need to put consumers first, develop new and improved solutions that meet users when they need them, and lower barriers to entry to make fintech more accessible to all.

Going digital

The rise of neo-banks – fast-growing challengers to the high street institutions that have dominated the market forever – was expected to bring about a change in financial services. By designing platforms that were digital first, or in many cases digital only, these new banks were expected to leverage analytics and open banking to offer a more convenient and personalized service to users.

But while challenger banks may have dominated the headlines in recent years, they have not dominated the market – the vast majority of consumers have not moved off the high street for their banking needs. We still see one a small proportion of UK consumers (12%) using a digital-only bank as their primary bank account – This indicates that there is still a lot of room for innovation in the financial sector, and this is where fintech startups must direct their attention.

For fintechs to grow in a low-funding environment, they need to win a larger share of the market, and doing so will require them to build trust. Bridging the gap between established banking users and digital financial services is possible, but they need to more effectively use the tools at their disposal to do so.

Open bank

For fintechs to stand out in the eyes of consumers, they must offer a personalized experience and value-added benefits such as financial advice, greater access to financial services and more seamless connections between different accounts and providers. Key to this is open banking, which enables users’ banking data to be shared instantly and securely between third parties, enabling improved data analysis and personalized financial advice.

Solutions such as real-time budgeting tools, faster and cheaper payment solutions and comparisons of available credit products can create a superior experience for bank users, but there is still a lot of room for innovation in this area, and fintech startups and traditional banks can both benefit from developing new technologies that helping customers better manage their finances and access new, personalized built-in financial solutions.

The whole idea behind Open Banking was to create greater transparency and put the customer first, but this vision has not yet been fully realised. With so much data and insight available, it should be much easier for customers to switch to better products that are tailored to their needs and requirements. Fintech startups and traditional banks can collaborate to develop new tools and services that make it easier for customers to find and compare financial products.

Build trust

One factor that may have had an impact on the uptake of open banking is mistrust – many bank users are still wary of giving third parties access to their banking data. By offering customers greater control over their financial data and allowing them to approve which providers they want to share it with, fintechs can build trust with their user base and drive organic growth.

Moreover, fintechs can leverage their relationships with users not only to provide financial advice and access to better financial products, but to help improve their financial literacy. Budgeting tools and investment guides can guide users to better manage their money, and providing educational resources can help them build their financial health and credit scores.

In addition to implementing solutions that support customers, fintechs can use this opportunity to focus on another important topic that requires attention – accessibility. With an increasingly older generation potentially excluded from newer, digital-first solutions, fintechs and banks have an opportunity to develop solutions that are easier for older customers to take advantage of.

The new age of fintech

Overall, the fintech sector faces some challenges, but there is also a lot of potential for innovation and growth. Both traditional banks and fintech startups can benefit from investing in new technologies and services that help customers better manage their finances and access more tailored products and services.

By improving users’ banking experiences, supporting them with useful tools and resources, and making banking more accessible, fintech can still drive organic growth at a time when external funding is harder to come by. Eventually, the investment will return, but until then, the future to fintech in the hands of banks and startups willing to take risks and drive innovation.

Ritam Gandhi is the director and founder of Studio graphene.