Why fintech is ‘recession-proof’ in times of crisis, according to the Milken Institute’s fintech director
Even as the U.S. economy slips into a recession, fintech is poised to move forward, said Milken Institute fintech director Nicole Valentine.
“I see fintech as recession-proof, and when I say recession-proof, I mean fintech is not going to stop moving,” Valentine told Yahoo Finance at the Milken Global Conference in 2023. “In downturn cycles, fintech startups figured out how to be lean. They figured out how to get smarter and build more quality into their product, and that’s what it’s all about. It’s about quality. It’s not always about size.”
Of course, not everything has been rosy for fintech this year – the sector was devastated by the collapse of Silicon Valley Bank. Even some of fintech’s biggest names, such as Affirm (AFRM), have been hit by the difficult macroeconomic environment and rising interest rates.
“Obviously, when the Fed figures out how to fight inflation, it changes our cost of capital,” Affirm CEO Max Levchin recently told Yahoo Finance Live (video above). “As the Fed changed interest rates quite dramatically, it had a real impact on ours [loan-to-cost ratio].”
“We have a tremendous amount of demand from consumers and sellers,” Levchin added. “There will be short-term disruptions from capital, from other places. But at the end of the day, this is a great business [and] seems to be performing very well.”
Still, as technology trends continue to spin out—such as AI’s leap into public consciousness—fintech is uniquely positioned to keep up. Valentine specifically pointed to the rise of generative AI as an opportunity for fintech, even in a recession.
“Fintech is always building on top of new technology,” she said. “So when we talk about generative AI, [when] we’re talking about blockchain, that’s how fintech moves through cycles. That doesn’t stop the builders.”
Valentine said that while the macro climate remains difficult, fintech is set up to continue.
“Fintech is not afraid of a crisis,” she said. “A crisis for fintech is just another opportunity to figure out what’s next. How are they going to reach their customer? How are they going to deliver value? And how are they going to be sticky in a moment like this?”
Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn.
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