The fintech industry has been on a rollercoaster ride the last few years, and 2023 has been no exception. It’s been tough, there’s no doubt about that, but as we enter 2024 there is certainly light at the end of the tunnel – and it’s closer than you might think.
Obtaining investment was difficult throughout 2023, but in 2024 while investment may still be scarce it feels like businesses with a strong case will find they have more opportunities than they did last year. We’re seeing a change in mentality among investors who are now favouring sustainable growth over aggressive scaling as they were back in 2019 (the most recent golden year for fintech investment).
This is a positive shift as businesses that sustainably grow (whilst having the funds and power to capitalise on opportune moments) are much more likely to have longevity. Investors are also looking at fintechs that can reach other markets and industries, something embedded finance solutions are experiencing as they work with companies operating externally from finance.
The Chancellor has also made promises to create more funding opportunities for businesses in the recent Autumn Statement, but there are a few things that need to happen for the investment climate to reach pre-2020 levels:
Transforming consumer habits around fintech products. This is something that we may see over the next 12 months as the government aims to legislate PSD3 and encourage the widespread use of open banking. It will force financial institutions, beyond the prominent establishments, to incorporate the regulatory framework.
The market is experiencing a drop in revenue due to a lack of disposable income from customers and businesses both from a B2B and B2C point of view. This creates hurdles for businesses to prove that there’s a sustainable revenue model to investors, hindering those who had their sights set on growth through VC funds.
Excitement around the sector and ensuring that the UK remains a hotbed for fintech is a necessity. The Middle East and Eastern Europe are hot on the heels of the UK and are shining brightly as fintech hotspots. To keep its competitive edge the fintech community needs to find new ways to market themselves to the world so that they can continue to attract the smartest talent, nurture founders to start innovative businesses on UK soil and bring investment into the country.
Lastly, and maybe most importantly, the economy needs to settle to restore confidence in investors.
Other hurdles we foresee include continuing implications of Brexit, cybersecurity concerns and growing scrutiny over the ethics around data privacy – topics that have been written about in-depth.
On the flip side, the evolution of PSD3 will force businesses to take on the cost of staying in-line with regulatory standards, yet in the long-term will create opportunities for revenue growth and potential investment.
One thing is certain, fintech founders have shown real resilience throughout this all, and fortunately, initiatives have been built to support those creating products and services that can really make a difference in the lives of British consumers and businesses. One such initiative; The Smart Data Discovery Challenge aims to financially reward and mentor leaders within the Smart Data space (and is not limited to banking).
These types of incentives will help founders take calculated risks and build thoughtful products to benefit UK citizens, whilst supporting them with funding and mentorship to help navigate any challenges that may manifest over the next 12 months.
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