Which areas have the greatest potential?
it’s been a while tumultuous year. Fintech has taken a big hit from his 2021 high. While 2022 was largely about resetting the funding landscape, 2023 will be a year of recalibration for fintech companies.
Fortunately, large and medium-sized companies are more focused than ever on the bottom line impact. As revenue growth slows, cost reduction and efficiency gains become critical. Larger companies are more likely to reduce their internal innovation efforts and investments in technology that are not core to their business.
This opens the door to fintech that can significantly improve the bottom line by eliminating manual processes and saving customers money.
Let’s start by looking at the sectors that are likely to be the most challenging: lenders, neobanks and fintechs serving SMBs.
online lender
Lending will be hit hard. A lender has three big tailwinds he has to deal with in today’s market.
- Increased delinquency and write-off rates.
- The debt they lend has a higher cost of capital.
- Decrease in demand from customers due to rising interest rates.
Focus on how technology can solve hard problems and worry less about finding the cutting edge of fintech.
Rising delinquency rates and write-offs from non-paying customers will be difficult to manage for new fintechs operating for less than five years. These young companies do not have fully built models to predict which customers are likely to default.
Risk management during an economic downturn can be harsh, and lenders will find this most acute.
neobanks
Neobanks has transformed the traditional banking customer experience by offering better digital products and lower costs. Larger companies like Chime, which has raised a lot of money, will be fine, but hopefully we’ll see some consolidation among the smaller neobanks.
The reality is that many neobanks have customers with low average deposit balances, and deposits are important to the bank’s business model in the long run. Neobanks will also fall victim to layoffs downstream – if any of their customers are laid off, banks will see their direct deposit flows diminish.
Fintech serving SMBs
Small businesses are more likely to close stores during a recession. Similarly, fintechs that serve SMBs rather than large midmarket and enterprise customers are more likely to lose SMB customers. This is why we are already seeing companies like Brex move away from his SMB.
what’s hot
Fintech opportunities in 2023 lie in ‘boring’ areas such as fraud, compliance, payments operations, taxes and infrastructure. CFOs will focus more than ever on revenue impact. Fintechs that can demonstrate measurable improvements in payment authorization and reconciliation rates, or a reduction in fraud, can weather recessions and thrive.
