The Fintech industry is composed of various sub-sectors that react differently to economic disruption. These include finance sub-sectors such as payments, crypto/blockchain, open banking, consumer and business lending, as well as technology-focused sectors like payroll, insurtech, regtech, big data, and edtech.
While there are pockets of turmoil across the Fintech sector, there are also areas of continued optimism that merit a more detailed analysis.
Consumer Lending
Consumer lending has been growing considerably for the last few years, resulting in a flourishing environment largely free of regulation. However, businesses such as Klarna have recently announced hiring freezes and redundancies, and its market value has dropped from an estimated $56bn to $15bn.
This is due to high amounts of unregulated consumer borrowing combined with increased living costs and relative wage drops. Another factor is the gradual increase in embedded financial lending from businesses such as Square and Shopify, which pose far less risk than the B2C lenders that flourished in the early days of Fintech consumer lending.
Crypto
The Crypto sector has also dominated the news, with the 500 biggest global crypto tokens collapsing from a November market high value of $3.2tr to $1tr. UK-based firms such as Coinbase and Crypto have made more than 1000 employees redundant in recent weeks.
Investment and advisory firms have warned Crypto businesses to avoid making the same DotCom era mistakes that led to confidence freefall. However, some Fintech firms are backing a Crypto revival, with Monzo Bank being the latest to insist they will push ahead with sustainable crypto investment.
Digital Landscape
On the other hand, digital payment growth is expected to continue for the next 5+ years across Europe, as society moves ever closer to becoming largely cashless. The digital payment revolution also has potential to continue globally across other continents. Digital payment Fintech’s operating in the established and scale-up phase have been largely unaffected by recent sector turmoil and continue to scale, with a minor number of start-ups halting recruitment over worries surrounding the macroeconomic picture.
The digital banking revolution has remained largely untouched, with UK open banking users finally reaching 6 million in the UK. Although optimism remains, there has been a very clear shift from scale and growth to driving increased profitability.
Business Lending
Business lending, specifically the peer-to-peer lending sector, has so far shown no sign of slowing down, with small business lending up 58% year on year. Experts believe that despite interest rates pushing up, business funding will largely remain an investment tool and therefore be unaffected by the movement of mainstream markets.
Impact on Recruitment?
Recruitment in Fintech is still up 50% year on year, and almost 20% of all technology hires made in 2021 were made by emerging businesses with that predicted to grow in 2022. While Fintech vacancies are down 9% in the last 3 months, this remains favourable compared to the wider UK and global economy.
For some, this economic setback will ensure a renewed focus on employee retention and P2P lending. However, for others, the bullish pursuit of industry domination will continue, with Fintech unicorns such as Mollie and Adyen already committed to continuing their growth and expansion.
Industry Outlook
The Fintech industry has experienced significant growth and asset bubbles over the past five years. However, with economists warning of a bear market, certain areas of the industry are beginning to suffer.
Rising borrowing costs, reduced consumer and investor confidence, and macroeconomic pressures such as the Ukraine War and the increase in global fuel prices are all impacting the sector. Additionally, regional issues such as Brexit and labour shortages in the UK and US economies are also affecting the industry.
Despite this pessimism, most of the industry has not been impacted so far. The future of the industry largely rests in the hands of shareholders and investors at larger Fintech firms and the wider macroeconomic climate. Many businesses are continuing to invest, banking on this being a minor blip and not a major setback, suggesting renewed confidence in the bouncebackability of the Fintech sector.
Strategies for Sustained Success
To sustain success, it is important for shareholders, business owners, and senior executives not to panic. Confidence breeds more confidence, while indecision and cautiousness will lead to even more uncertainty in the market.
Business leaders should take the lead from some of the sector’s unicorns and use this as an opportunity for further expansion.
Retention and Onboarding
Retention and onboarding are also critical during this time of uncertainty. The recent downturn has coincided with the “great resignation,” making it imperative to focus on retention and reassure workforces that the company is not nervous and has no plans to relent.
A high voluntary leaver rate and a shortage of labour could create a negative net headcount, which is worrisome for even the most stable of firms. Providing the best possible onboarding experience can help keep the net headcount in the black.
Recruitment and Search
Investing in graduate recruitment highlights a company’s future planning and ensures succession plans are in place. This approach speaks confidence and can help sustain success.
Proactively searching the market to identify talented and high-performing individuals through Executive Search can also help counteract the current labour shortage.
Recruitment Process Outsourcing
Engaging with a Recruitment Process Outsourcing (RPO) firm can provide a recruitment team that can be rapidly scaled up or down depending on the company’s needs at the time. This helps avoid a heavy cost centre and enables the business to be run in a lean and agile way, so as not to impede growth ambitions.
Summary
In conclusion, while the Fintech industry is facing economic setbacks, most businesses are continuing to invest, banking on this being a minor blip and not a major setback. To sustain success, it is important not to panic, focus on retention and onboarding, invest in graduate recruitment, proactively search the market for talent, and engage with Recruitment Process Outsourcing. By taking these steps, businesses can weather the current economic climate and emerge stronger.
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