The world is staring at an economic downturn due to the severe health and financial shocks inflicted by the pandemic and the massive economic disruptions triggering the Russia-Ukraine war. The current economic scenario has the potential to send some FinTech firms into hypergrowth and others into ruin. Global inflation is continuing to rise, but what does this mean for FinTechs?
Traversing through an inflation
Several countries are now going through what the experts call – stagflation, which is a mix of low growth and high inflation. It can be a mixed bag for fintech companies as they are involved in different activities like lending money, buying equipment, and more. The reality is no one exactly knows how to navigate a modern inflationary environment.
Inflation effect on fintech
Decreased confidence from investors: Fintech companies are ever reliant on investors to grow and expand their businesses. Unfortunately, the risk of inflation will call for bigger demands on investment returns and lower company profit.
Increased borrowing from fintech: With rising costs due to inflation, fintech companies remain essential in providing loan services to small businesses and individuals
Increased spending on equipment: Fintech has been essential in storing and moving money through the technologies and/or infrastructures they develop. Due to current events, however, profits from these services have been affected.
By focusing on fundamentals and drawing the right balance between being conservative and bold, fintech players can cushion the impacts of inflation.
Strategic preparedness to face the storm
Inflation in 2022 has the potential to send a few fintech’s into hypergrowth and others into ruin. Interest rate hikes and the end of quantitative easing are inevitable, as the Federal Reserve has signaled, to combat a 40-year high in inflation. Firms need to Implement a strategy that works to address different economic landscapes. Inflation could lay waste to many fintech’s in 2022 unless they act now.
Moves Fintech firms need to make to prepare for the possible coming storm
Do more than just provide a service: Help your customers achieve positive financial outcomes that outweigh better interest rates. Leveraging personalization, automation, and predictive analytics to help customers be more financially successful will give your firm a competitive advantage than other competing banks and fintech’s. Shortcutting the laborious processes of opening accounts or applying for loans is also a huge selling point.
To be cautious and invest in long-term fraud control measures: An economic downturn invariably leads to an increase in NPAs. With a jump in the number of defaulters, fraudulent transactions and suspicious activities become prevalent. Investment in long-term fraud control measures is a must during an inflation.
Improve pricing practices: Companies must adopt more dynamic pricing practices. Using AI understand the pricing opportunities. Use Artificial Intelligence to predict their customers’ willingness to pay and understand the gap to current prices.
Tap the un-banked sector: During an economic depression, large banks lend only to customers with high credit scores. Fintechs can aim at the underbanked community and get the lion’s market share.
Exploit the possibility of new acquisitions: Firms which are not adequately capitalized come under significant cash pressures and become available for a takeover. Exploiting the opportunity and acquiring those businesses can provide an inorganic boost to the top line and access to new proprietary data.
Communicate effectively to customers: Like any other change, price adjustments need a strong change management process enabled in order to achieve maximum effectiveness. A clear rationale for the price increase needs to be developed and the sales team needs to be appropriately enabled to ensure this rationale is communicated effectively.
Companies that have the right tools and systems in place to make informed decisions on time will outperform their competitors. Organizations that use AI have greater visibility into customer and product profitability, allowing them to analyze data more frequently and implement more targeted price increases. This enables them to device change more quickly, increasing their chances of successfully navigating inflationary periods.
There is both an ocean of opportunity for the industry and some challenges ahead. With the current crisis, the future and sustainability of fintech are reliant on its response, especially for smaller fintech firms that would have to push for continued innovation amid rising costs. While a recession is always perceived as unfortunate for the larger market, by addressing the challenges at hand and exploring newer possibilities, fintech players can do well for themselves and the economy.
