DISRUPTOR DISRUPTED: THE SLOWED-DOWN GROWTH OF THE FINTECH INDUSTRY

 

Are There Any Hindrances Keeping the Financial Technology From Growing?

 

(July 13, 2020) – FinTech is the powerful coalescence of Finance and Technology wherein technology was integrated into the financial systems to help businesses, companies, and consumers automate and thereby improve and better manage their financial operations, transactions, and processes via computers and smartphones.

 

The FinTech industry saw its explosive growth beginning in 2015 boldly challenging the incumbents by unbundling and niching various financial offerings to serve a more consumer-oriented market. FinTech company startups brought a lot of the unbanked and the underserved into the financial grid in many an experiential way and even created new markets to further enhance the consumer experience. Now, these startups have turned into seasoned competitors with a global reach rattling institutional walls through continuous innovations and broadening horizons that have, thus, demanded an entirely new financial way of thinking for consumers far beyond just quick accessing but also by becoming responsible users of the different financial and investment products. The guidance provided by FinTech is contributing much to the financial health of consumers. According to the EY FinTech Adoption Index 2019, the adoption of FinTech services has been going steadily upward, from 16% in 2015 to 33% in 2017, to 64% in 2019. FinTech awareness rose even to non-adopters as 96% of consumers know of at least one alternative FinTech service available to help them transfer money and make payments.

 

A Disruptor Disrupted.

 

Valued at $127.66 billion in 2018, the global FinTech market has been predicted to grow at an annual growth rate of 24.8% through 2022, expanding automated applications through the blockchain technology which including insurance, trading, banking services, and risk management. But while FinTech services have transformed the financial industry, challenges are foreseen and unforeseen lie ahead.

 

The Pandemic Stress.

 

The sudden global crisis brought about by the COVID-19 Pandemic exposed many economies, companies, and businesses as to what mettle they are made of in all aspects of resiliency. While others found opportunities amid the prevailing crisis, many fintech unicorns, newbies, and startups were shaken up big time by rough market conditions and consumer behavioural shifts they knew nothing about. Venture capital investors can be jittery and may start selling their positions for a more liquid portfolio. FinTech companies with high valuations may not turn to be profitable and investment can shift to low-cost FinTechs. Surviving the crisis is now heavily rested on flexible business models and effective cost adjustments.

 

Other factors that can trigger a slowdown include a meltdown of trade relations between the US and China and the political uncertainties of the coming US elections. Fintech expert Dushyant Sharawat sees the market with a technically keener observation on three points:

 

1. That the private investment market is inherently cyclical and closely tied to public markets. While PE investing is more tied to the debt market (cheaper debt drives PE activity), Venture Capital is strongly correlated to the equity market (healthy IPO pipeline drives more VC activity).

 

2. That protracted public market boom (as we have seen since 2009) drives up the private market with four indicators of an overheated situation today: record amounts of fundraising, very strong investment activity, stretched valuations, and a lowering of investment standards.

 

3. That the private market doesn’t adjust rapidly to a change in the public market, there’s a lag. The adjustment process is slow and not linear, which leads to sustained imbalances that are hard to predict or decipher, which means it is crucial to be extra vigilant about a shift in the polarity of the private market cycle.

 

Shawarat said that telltale signs of an overheated situation are all present: record fund-raising, VCs falling over each bidding up valuations, and a gradual lowering of investment standards. Without wishing an iota of a Fintech downturn, Shawarat would want to see FinTechs answering hard questions beforehand. Are we prepared for a slowdown in the private market? What would our game plan be, as investors or FinTech founders?

 

Positive notes.

 

To stop the coronavirus from spreading, the World Health Organization posted an advisory reminding people to stop using banknotes and instead switch to contactless payments and related systems.

 

Meanwhile, the adaption to life in a lockdown drove a massive rise of 72% in FinTech app usage in Europe alone, according to research by the deVere group. This encouraging news for the FinTech industry indicates an increasingly digital and online society brought about by the fight against the coronavirus legacy, affecting the way we interact, live, work, and take care of our finances, deVere stated.

 

The pandemic may grind us all to a halt and racking status quos across the board, but the slowed-down global economy will separate winners from losers as companies will have more realistic valuations, and that FinTech and all it brings really does work long-term in tough contemporary times as they have shown rising from the ashes of 2008.