Why 2023 is the comeback year for UK fintech? | Yonder CEO Tim Chong
It’s fair to say consumer fintech has had a tough run of it recently. A sector which was once one of hottest investments in the market was hit by a wave of blows last year — from nose diving valuations to funding drops which saw businesses collapsing at an extraordinary rate.
The end of 2021 was a different story — stocks were rising again as the world recovered from the impact of the pandemic, and there was an air of anticipation from businesses that 2022 would signal the start of the ‘roaring 20s’. But rising interest rates and fuel prices, exacerbated by Russia’s invasion of Ukraine, has had serious consequences on all markets, with fintech a particular casualty. Investors inevitably became more cautious and many fintech startups saw their funding dry up.
Sifted reported recently that Europe saw the lowest fundraising quarter for six and a half years in Q1, with fintech the hardest hit. Combine that with the collapse of Silicon Valley Bank which served many innovative UK and US startups, and the outlook seems pretty bleak on the surface. So why should we expect a U-turn?
Challenges lead to innovation
There’s no doubt that capital has become 10 x harder to access, but it can be argued that challenges can often power change. Fintech is built on fast-moving innovation, and I’m confident that difficult economic climates will propel the fintech sector forward, creating a deeper environment of transformation and entrepreneurship.
The UK is a proud leader in fintech and is home to consumers with one of the highest fintech adoption rates in the world. Consumers here are driving the need for new and smarter ways to manage finances, and the talent, infrastructure and regulatory environment means that the UK is the perfect place to innovate, fast.
Full market transformation hasn’t happened yet
We’ve seen some extraordinary transformation of the finance market to date, fuelled by machine learning and Open Banking, but many areas of the market are still in their infancy. Take credit for example — when credit cards launched in the 1960s they were a revolutionary alternative to cash and instalment loans, but despite all the technological progress of the last two decades, credit cards still fundamentally haven’t changed.
We’ve seen a significant opportunity to rebuild the credit market through fintech, and we’ve just begun to scratch the surface of our vision. And credit is just one of many financial sectors at the start of steep change — areas like Insurtech and Wealthtech are also at the start of their growth journey.
High growth opportunities
The economy is hovering above a recession, so it’s to be expected that the first half of this year has been weak in the fintech investment market. But investors still need to invest — our recent Series A fundraise is proof of this. They’re just doing so more cautiously, looking for high growth opportunities and businesses with a fast path to profitability.
While fintech startups should expect much more scrutiny on profitability and financial forecasts when it comes to fundraising, there’s always opportunity for products and services that bring something new to the table.
Open Banking is evolving
Open Banking as a payments solution has come a long way, but it’s at the very start of its evolution. While we use Open Banking at Yonder to help us underwrite customers with no or thin credit files, we don’t feel comfortable relying on it fully yet and we’re seeing inconsistency in adoption. But the Joint Regulatory Oversight Committee (JROC) has just published its recommendations for the next phase of the Open Banking vision and we’re excited to see how these developments are going to open up new areas of opportunity in fintech innovation.
Markets across the world have seen downturns in the last few years, so fintech isn’t unique in the challenges it’s faced. But what’s important to remember is that financial services represent 8% of the nation’s GDP. It’s a huge industry, fuelled by great talent, infrastructure and regulation — the foundations of exciting growth.