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5 Tips on How to Navigate the Perfect Storm in FinTech

Emmanuel Nnaemeka

The Guardian NG

  In the past ten months, dozens of startups in Nigeria have either shut down or downsized. The big names such as Opay, Kuda, Konga, Jumia, etc. are not left out. This is the same elsewhere in the world. According to a report by Finextra, in the first quarter of 2022, global fintech indeed saw its biggest funding plunge in three years.
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The FinTech industry used to receive the lion’s share of funding and attention but is now under severe tension. However, that does not indicate catastrophe. Venture capital funds persist in the financing, except that they are more cautious. In fact, funding in FinTechs will predictably surpass $300 billion globally by the end of 2022. Regardless, competition for these investments between fast-changing FinTech leaders booming in the post-pandemic period will absolutely intensify. According to a World Bank study, FinTech is quickly transforming the financial sector terrain and clouding the borders of both financial companies and the financial sector. In 2020, everything around e-commerce and BNPL was heated, and money was being thrown at these FinTech companies. The crypto sector was also hot with incredible ICOs and hordes of coins that had no utility and generated interest. Even IoT was hot until it wasn’t anymore. Apart from Web3 and Defi, much of the focus at the moment is on carbon capture startups. For sure, it’s only a matter of time before more startups use blockchain technology to keep a record of carbon reduction, which also links the regenerative work of land managers to the companies buying carbon credits. FinTech appears to be entering a perfect storm situation. Therefore, below are five trends that all FinTech players should look out for during this difficult time but are also full of opportunities. For financial companies, digital transformation is all-encompassing. At the same time, top-down or ‘directed innovation’ approaches can be slow or inefficient. So the challenge is how to combine speed and dexterity with compliance and security. We are already seeing a way forward here, with numerous startups delivering highly customized financial products and services, often with an integrated frame. It’s intriguing and often leads to absolutely delightful experiences for customers. We’re bringing payments, loans, credit checks, insurance quotes, and a mass of other products directly to the outlets people use every day.
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Part of this thrill is novelty, wonder, and potential. Part of it is how seamlessly these technologies incorporate, almost seamlessly to the user. Glancing towards the next era of FinTech, we will also see a growing area in compliance, regulation, data security, privacy, etc. Perhaps this fresh awareness of fundamental internal workings will come from cooperation with legacy institutions. This back and forth, incorporating the best of big banks and start-up providers will be a promising way forward for digital transformation. Incorporated payments and loans are certainly just the beginning. With the next era of incorporated financial products arriving in the market, we will seek a wider level of engagement between companies and their customers, for instance, with integrated scoring for product proposals. Startups that discern how to profit from compliance and adequate data handling will be agile companies succeeding soon. A recent study indicates leaders in data design are boosting gross latitudes by 9.5%. On the other hand, 67% of data design leaders strongly agree that their data is growing faster than they can keep up. The growth of AI and Machine Learning technologies facilitates us to find remedies to this dilemma of “too much data” and deepen the usage of alternative data. Using alternative data with AI & ML algorithms that FinTechs offer can indeed stimulate tremendous financial inclusion and enhance lenders’ profitability by comprehending their customers beyond the calculation of conventional credit history data. Data obtained in the context of online services, comprising payment patterns (utility bills, rent, and monthly subscriptions), may shape the ground for assessing the creditworthiness of a borrower who has not had previous businesses with a financial services provider. Because consumers are becoming more educated about data privacy, it’s particularly critical now that industry actors are doubling down on their responsibilities to acknowledge the laws while also protecting users’ data and relative rights.
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The success of a FinTech startup is anchored on various components. From getting the product right to getting the first paying customer promptly, to being able to employ the right get to getting sufficient funding. What makes a FinTech startup successful is technology: how simple it is to incorporate, how helpful it is for a sophisticated institution and what help it brings. Also crucial is the capacity to gauge and take out maximum value from the service, whether monetized data, software-as-white-label label white or otherwise. There are clearly two other characteristics that, beyond the management of many startups, are also important: time and luck. No matter how severe the existing investment environment is, there is still a lot of funding out there. It is money that VC funds have put up but have not yet invested in any company and will have to be deployed for the VCs to receive their managing incomes. Although this is good news for the FinTech ecosystem, VCs are also a lot more careful and appear to favour startups that are successful or have an apparent direction to profitability. For example, European VCs are still in the game, but valuations have come down — especially at the latest phases — according to a new study of regional investors. The awareness is now on startup founders’ vision of prospective earnings, not the likelihood that a sales channel might convert. Business prototypes with recurring income seem to be favoured over pay-per-use ones, and much examination happens to be going into evaluating existing clients’ true revenue capacity rather than new ones’ future prospects.
  1. Skilled Leaders Are More Likely To Win
In such a tough atmosphere, stability and positiveness are fundamental for designing a scaling FinTech. Nonetheless, these qualities need to be strengthened with knowledge. Skilled leaders are thought more inclined to accomplish more than inexperienced, less skilled ones. No matter how brilliant or whizz-kid someone is, you never know what you don’t know. Those who underwent the 2008 downturn will recollect the tricks that helped back then and won’t have to go through a trial-and-error policy to recognize the winning strategy. We are speaking about survival. There is no time and no money to improvise. Any hesitancy or error will reduce the runway. Featured Image Source: The Guardian NG
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