Investment in fintech has grown exponentially in recent years, enabling companies and end-users to access affordable, convenient, and modern financial services. According to a bi-annual report published by KPMG, global fintech funding in 2021 reached $210 billion across 5,684 deals, compared to $125 billion across 3,674 deals in 2020. While the payments space continued to drive fintech activity, representing $51.7 billion of the total investments, the number of deals across other areas, such as cybersecurity, crypto, and wealthtech, shows record levels of interest as well.
On the other hand, the world is currently facing one of its worst economic downturns, with soaring interest rates, inflation, and industry-wide layoffs potentially hampering the growth of this sector. Among fintech leaders, this raises the question: how can fintech organizations drive growth and gain competitive advantage in this economic climate?
Opportunities in a weak economy
When the economy is strong, it can be easier to justify operational inefficiencies. Maybe there’s more room for slack in the name of experimentation, or maybe there’s no sense of urgency to identify inefficiencies when things are going well. An uncertain economic climate changes the value calculation here.
During such times, legacy institutions like banks may be more motivated to trim inefficiencies and find solutions to operational problems. For fintech companies looking to partner with banks, this could be a boon—they can provide the technology solutions that save time and money for both the banks and their customers, at a time when this is sorely needed.
It’s also worth keeping in mind that a weak economy underscores the major problems that fintech companies should be angling to solve for their customers, whether individuals, businesses, or financial institutions. Some fintech companies have erred by engineering solutions to comparatively insignificant problems—they’ve created impressive tech that nevertheless fails to provide what the customer really needs. An economic downturn has a way of washing away products that don’t really solve their customers’ problems. Fintech companies would do well to keep this in mind as the threat of recession looms.
Drive growth through innovation
While experimentation and innovation require an investment of time and money, doing so enables fintech companies to seek new growth opportunities and identify high-performing projects faster.
In the payments space, for instance, fintech apps like Venmo and CashApp saw an opportunity to provide ease and speed of payments and transfers by allowing users to receive direct deposit of stimulus checks. As a result, when US cities went into lockdown in April 2020, billions in aggregate balances were deposited into these apps.
Used by vendors to process mobile payments, Stripe and Square also performed well during the pandemic. In addition to adding business services, such as analytics, fraud protection, marketing, and payroll, these companies also provided corporate debit cards and loan services to small businesses. Stripe, in particular, aligned itself with Zoom and Instacart as one of their payment processing providers at the start of the pandemic.
In wealth management, many fintech companies realized the opportunity for robo-advisory to provide investment solutions, such as trade execution, asset allocation, and portfolio optimization, while reducing fees and unnecessary interaction with financial advisors. In the case of Robinhood, its user-friendly and convenient app has broken down the barrier of entry in investing among many young retail investors. In 2020, the no-fee brokerage onboarded more than 3 million new investors to its fintech app.
Customer retention is more important than ever
While it is vital to acquire new customers, retaining existing ones should be at the top of the priority list during a turbulent economy. Especially during a recession, companies must maintain cash flow, and a key driver for this is recurring revenues from existing customers. This means that effective customer retention strategies are necessary to avoid customer churn.
Understanding who their users are and why they keep subscribing to their digital products is crucial to retaining customers. Through customer segmentation and other approaches, such as customer data analysis and predictive modeling, fintech companies can gain a 360-view of their customer base to understand their needs better.
Fintech companies can also provide benefits to recognize their customers’ loyalty through reward points, cashback offers, and third-party discount promos. For personal finance apps in particular, gamification can also work to boost engagement.
It’s also important to recognize the importance of an intuitive, easy-to-navigate user experience. To retain customers, you need to engage them, but it’s impossible to stay engaged with a product that is difficult to use. User-first design really is key.
Tracking and measuring ROI from customer investments is the final piece of the puzzle. By using tools such as social media feedback and net promoter scores and calculating the customer churn and lifetime value, companies can intervene at the earliest signs of risks.
As uncertainty persists in the broader economy, fintech companies can still seize opportunities to expand their customer base, introduce new products, and scale their businesses.