Victoria Treyger contribution
It’s been quite an eventful year. Fintech has fallen a long way from the 2021 highs and while 2022 has been largely about rebalancing the funding environment, 2023 will be a year of recalibration for fintech companies.
The good news is that large enterprises and midsize companies are more concerned than ever about the impact on the bottom line. As revenue growth slows, cost savings and efficiency have become critical. Larger companies are more likely to cut internal innovation efforts and non-core technology investments.
This opens the door for fintechs who can achieve real improvements in the bottom line by eliminating manual processes and saving their clients money.
First, let’s take a look at the sectors that are likely to pose the greatest challenges: lenders, neobanks and fintechs serving SMEs.
online lenders
Lending will be hit hard. Lenders face three major tailwinds in today’s market:
Focus on how technology can solve tough problems and stop worrying about what’s cutting edge in fintech.
The rise in arrears and charges from non-paying customers will be difficult for newer fintechs operating for less than five years. These younger companies do not have the fully developed models to predict which customers are more likely to default.
Risk management during a downturn can be brutal, and lenders will feel it the most.
neobanks
Neobanks transformed the customer experience of traditional banks by offering better digital products and lower costs. While big players like Chime, who have raised large amounts of capital, will be fine, they expect consolidation among the smaller neobanks.
The reality is that many neobanks have customers with low average deposits, and deposits are critical to banks’ business models over the long term. Neo-banks will also be downstream victims of layoffs – if one of their customers is laid off, the banks will see their direct deposits fall.
Fintechs serving SMEs
Small businesses are more likely to close during a recession. Conversely, fintechs that tend to serve SMEs rather than larger mid-market and enterprise customers are more likely to lose their SME customers. That’s why you’re already seeing companies like Brex moving away from serving SMBs.
What is hot
Opportunities for fintechs in 2023 lie in the “boring” areas like fraud, compliance, payments, taxes and infrastructure. More than ever, CFOs will focus on the impact on the bottom line. Fintechs that can demonstrate a measurable improvement in payment authorization and matching rates or a reduction in fraud will be able to weather the downturn and thrive.