Fintech won’t be derailed by recessions – but it still needs strong regulation to thrive
Fintech will survive the current economic challenges – it always does. But in order to reach it full potential, it needs strong compliance and regulation to ensure trust, writes Dima Kats
We have been facing what feels like an onslaught over the last few months: rising inflation, the cost-of-living crisis and the ongoing uncertainty surrounding Brexit created a snowballing effect of economic challenges weighing heavily on the country and stifling growth.
In short: we’re nervous and it’s showing. Wary of sticking their heads over the parapet, both investors and businesses are playing it safe. We’re seeing this reflected in the lack of investment in venture capital in the UK, which fell by 30 per cent last year.
The difficult ongoing geopolitical situation has also put roadblocks in the way of growth. Sanctions are often done through the financial industry, and the global economy in the second half of 2022 saw a significant drop in investment in fintech as geopolitical tensions heightened. Coupled with the collapse of the crypto exchange FTX, it fuelled scepticism in the industry. But tough times call for innovators and fast decision-making.
The AI frenzy is just one avenue that has been sweeping through every industry and, for fintech, will drive the development of more competitive solutions. AI will revolutionise the financial sector: it can identify fraud by monitoring customer behaviour patterns, personalise the customer experience and provide data-driven insights into the market to help businesses make decisions.
Globalisation is also playing a huge part in demonstrating how useful fintech can be. Much like the rest of the world, Africa’s digital payments industry has boomed in the last couple of years and real-time payments are increasing. Nigeria is leading the charge in the top ten global real-time transaction rankings in absolute terms, ahead of the US and Japan. The continent’s ecosystem is growing; last year it defied the global trend of decline and saw $5.4bn raised for start-ups across more than 975 deals. The remittance industry will see itself grow with increasing cross-border payments as Africa keeps up with innovations this year.
However, regulation must take precedence as fintech works to restore trust. The Bank of England is considering a digital pound – the “Britcoin” – to adapt to the way some consumers are changing their payment methods. A central bank digital currency could bridge the gap, as cash usage continues to drop.
In the private sector, stablecoins will help minimise the volatility commonly associated with crypto. Designed to have a stable value, stablecoins are usually tied to a fiat currency, like the dollar, and are generally used in decentralised finance for transactions.
The industry only truly functions well if it has strong compliance and, right now, we have an opportunity to raise the bar. This year has started with a fresh set of challenges to overcome, but if the past is anything to go by, diversification is the industry’s modus operandi in hard times.
It’s important to remember where we are from where we have been. Growth is not always fast or linear.
Monzo, Starling and Revolut all started around seven years ago, but are only now seeing operational profitability. Similarly, waves of recession have slowed progress in fintech, but never derailed it.
Rome wasn’t built in a day. This fintech winter will see more solutions and innovations this year as we continue to push for growth and progress.