A guide to how fintechs can survive, and even thrive, in the impending recession. This year has been anything but calm. We’ve seen a tenuous economic situation, fraught with the after-effects of a global pandemic, the war in Ukraine, an unstable political climate, and housing and food shortages. It’s not hard to believe the experts when they forecast that we are headed towards a recession.
However, research suggests that even with an economic downturn, the fintech industry is projected to be worth over $300 billion by the end of this year. After the pandemic hit, 59% more Americans reported using apps to manage their money than they did before 2020.
With a strong push towards rapid digitalization since the pandemic, the rise of work from home, and the emergence of a new unbanked and tech-savvy generation, fintechs have the opportunity to flourish, even with a looming recession on their hands. Even so, many young fintech leaders have not been tested by a significant economic downturn, and this poses the question of whether they will be able to ride out the economic storm.
Armed with unique advantages, fintechs must focus on what they can do to put themselves in a strong position to come out on top in the face of an economic downturn. Below are our top 8 strategies for fintechs to gain an upper hand in the competitive banking battleground.
8 Ways To Recession-Proof Your Fintech Business
1. Strategize Your Spending
During uncertain times, business leaders are often tempted to make short-term decisions that negatively impact their long-term strategy. This includes broad reductions in investments in technology, innovation, talent, office modernization, and customer experience.
While it is smart to conserve your cash flow by limiting spending, it is also important to strategically hire and invest in technology that provides your fintech with the greatest long-term value. Overall, we suggest fintechs react carefully to economic developments, and not cut costs rashly.
2. Realize the Potential of a Younger Unbanked Generation
As a new generation comes of age, banks are realizing that young people have different wants and needs than their parent’s generation.
Fintechs must have a clear understanding of who their customer base is and provide them with the features and functionalities they want.
Key features to keep in mind for serving Gen Z and Millenials include easy money transfers, investing and savings apps, quick load time, and chatbots.
3. Buy Now, Pay Later
While Buy Now, Pay Later (BNPL) is not a new trend in the fintech industry, we predict it will not be a passing craze, thus we encourage fintechs to continue capitalizing on BNPL. BNPL will likely continue to grow as a form of payment as a result of the recession; as bills increase, BNPL will serve as a way for many people to afford bigger-ticket items.
Additionally, BNPL is a way younger people can buy a large purchase without needing an established credit score. We have seen more financial institutions, from fintechs to brick-and-mortar banks, adopt BNPL, and this is unlikely to change anytime soon.
4. Consider a Symbiotic Bank-Fintech Partnership
Fintechs and banks may often be seen as competitors, but they can also lean on each other to form a partnership with mutual benefits.
For fintechs that partner with a bank, they can save time and money on gaining PCI compliance, and having access to licensed services, technology infrastructure, brand awareness, and a customer base.
Banks gain an edge by partnering with fintechs in the form of faster technology adoption, customization of products, and streamlined operations.
5. Prioritize Strong Data
Studies have shown that companies with fully accessible data are more likely to report substantial transformation progress and be better equipped digitally to maintain business continuity in a crisis, including a crisis of the economic variety.
Data provides the foundation for a fintech to understand its customer base. Through data analysis, you will have the best insights into customer behavior, needs, and expectations – especially important as economic changes may affect customers’ spending habits.
The better you understand your customers, the better you can serve them with custom and relevant solutions.
6. Invest in Tech Advancements
The benefits of tech advancements cannot be overstated. AI and Machine Learning offer fintechs a whole host of benefits, like increasing client attrition rates, lowered labor expenses, and speeding up and facilitating everyday business, while keeping assets safe.
For fintechs trying to get an edge on the competition, AI can serve them well in reducing fraud and false positives in payments processing and in implementing customer-facing app features, such as chatbots and virtual financial wellness coaches.
For fintechs intimidated by the costs and expertise needed to implement AI and ML solutions, we recommend partnering with a tech partner who is experienced in the fintech industry.
7. Consider a “Side” Hustle
While it is wise to stay focused on doing what your business does best, it might not hurt to consider less trendy and glamorous side prospects for your business, such as P2P lending, a crowdsourcing app, or building a payment gateway.
These underserved, and less flashy regions of the fintech industry could be key places to invest your time and efforts in. There are a lot of industry players, so it is important to set yourself up for success and come ahead of the competition.
8. Be Dynamic
Following the housing crisis in 2008, many traditional banks closed off lines of credit and backed away from small business lending. Yet dynamism in trying times is the key to moving forward, even during a recession. Dynamism in startups and fintechs has been shown to result in better resilience in response to economic trauma.
In the event of another downturn, we recommend that fintechs deliver in a similar way to the 2008 recession – by prioritizing flexibility, innovation, and straying from traditional practices.
While 2022 can seem like an intimidating time to start or grow a business, for the fintechs that wisely plan and prepare there is great potential for them to survive and thrive in any economic climate.
Plus, if startups like Venmo, Instagram, Uber, and Whatsapp launched and succeeded during the 2008 Recession, what’s to stop your business from coming out on top?
- How The Blockchain Can Protect Your Fintech Data
- How To Develop A Fintech App in 5 Easy Steps
- 6 Digital Banking Ideas You Can Borrow From Fintech Industry
Author Bio: Yuri Kropelnytsky is Softjourn’s Payments Expert, with over 10 years of experience working with payment processors. He has worked with one of the largest Eastern European card processors, including coordinating long-term support of the processing system and leading the development of new processing software. His experience includes programming smart cards, EMV chips, HSMs, key management, and ATM programming.