What is the state of fintech midway through 2023? I caught up with our Meet at the Cafe analysts to hear their thoughts on the trends and tensions that are driving fintech today. My conversations featured Chris Skinner, author and CEO of the Finanser.com; Richard Neve, Executive Creative Director, Cognito Media; and Suraya Randawa, Head of Omnichannel Experience, Curinos.

Join our upcoming Meet at the Cafe conversation featuring myself and Finovate Senior Research Analyst Julie Muhn, at FinovateSpring on Wednesday May 24th.

Chris Skinner: On Crypto Winters and Fintech Bloodbaths

For Chris Skinner, the circumstances for cryptocurrencies in specific and fintech in general are dire. Referring to our current moment as “the crypto winter and fintech bloodbath,” the CEO of The Finanser and frequent Finovate keynote speaker sees the crisis in crypto and the current challenges to fintech as part of the fallout from the overinvestment, overvaluation, and over-enthusiasm of the COVID era. He explained that we are now seeing those valuations plunge as the overhyping of all things digital becomes corrected post-pandemic. Skinner’s recent blog post “The 7 Deadly Sins of Startups” underscores the ways many would-be innovators of our time have, in too many instances, brought misfortune down upon themselves.

Fortunately, Skinner noted, the underlying systems that have made Bitcoin and digital assets possible – and continue to make fintech innovation possible – remain intact. In this, he sees a period for startups not unlike the post-dot.com era of retrenchment. It will be a “rocky road” in Skinner’s estimation, but perhaps not as long a journey as we might fear. He suspects we could start to see new business cases in crypto and digital assets as soon as the next two years.

What should we look for to know when the crypto winter is starting to turn toward spring? Skinner suggests not just watching for a recovery in venture capital and private equity spending, but also noticing what they are investing in. He’s on the lookout for strong B2B use cases, as well as companies solving real customer problems in retail and banking. Lastly, he points to the leaders – the Nubanks, the Klarnas, the Stripes. If fintech rebounds, then companies like these should have long coattails for a new round of startups to chase.

Richard Neve: Make Profits and Invest in Your Brand

For Richard Neve, the days when all that mattered were growth, top line gains, market share – the idea of getting big first and making money later – are gone. Now that fintechs are increasingly graded based on their profitability – or lack thereof – there are few things more important than showing potential investors and partners that you have a clear pathway to a strong bottom line.

“Now it’s about return on equity,” Neve said. “Companies need to think about their product – which customers do – not just the number of customers they have.”

But profitability isn’t easy. Not the least of which is because, as Neve, puts it plainly: “financial services is an expensive business.” A significant portion of that expense, he notes, is the result of meeting regulatory obligations consistently and accurately, which drives costs in a notoriously “people-intensive” industry like financial services.

The key to profitability, Neve explained, is volume, and the path toward greater volume for fintechs is via distribution. “If you’re a fintech, you need to grow in order to keep up with the HSBCs, the larger players,” he said. Fortunately, there are multiple ways for fintechs to grow and what works for one fintech may not work for another. In some instances, partnering with a larger player is preferable. The larger partner may be a bank, of course, but partnerships with Big Tech and Big Retail – and even Big Social – could all provide opportunities for fintechs to reach more customers. More intimately, M&A and joint ventures with other fintechs will also be routes startups will pursue to achieve greater scale and profitability. “The smart entrepreneur will scout out any opportunity available,” Neve said. “In a larger constellation, (they) will always be stronger than they will be on their own.”

Lastly, Neve wanted to make a point about the importance of brand in financial services – especially when it comes to attracting partners. “People want to do business with people they know,” he said. “If people don’t have a narrative about you, (then) they don’t want to partner with you or invest in you. The fintech that will win is the one that continues to invest in its brand.”

Suraya Randawa: Adulting in the World of Banking

The importance of making money as a financial services organization – bank or fintech – is a major issue from Suraya Randawa’s perspective, as well. “Investors are patient,” Randawa said, “but at the end of the day, you need to turn a profit.” She recalled the meme in recent years that “balance sheet banking was dead” – not so much, it seems, as the recent spate of bank failures attests.

Randawa is sympathetic to the challenges that fintechs face, and she is clear on their strengths, as well. “Fintechs are good at targeting segments, designing interfaces, and then delivering excellent user experiences – if not excellent customer experiences,” she said. “Fintechs are great for discovery. (They) are the place for innovation and failure. That’s why banks are attracted to them.”

But as the popularity of the fintech’s solution grows, and the number of users grows, new challenges appear. Some users will be content with a company’s initial offerings. Yet the sheer volume of these individuals can become an issue as startups realize the importance – and cost – of the less glamorous aspects of running a customer-facing business. These issues include things like dispute management, or customer service at a time of social panic (like a global pandemic or a systemic financial crisis or a terrorist attack).

Other users will bring new demands, a phenomenon we’ve seen – at its most powerful – help an online bookstore become The Greatest Retailer on Earth and turn a teen dancing app into a major international social marketing tool. Randawa talked about fintechs that have successfully expanded their offerings over time, companies like Monzo, Revolut, Chime, and SoFi. “They were strong with their initial segments, and then successfully grew,” Randawa said. Asked how much of this ability to scale – and even transform – is customer-driven and how much is powered by the vision of company leaders, Randawa suggests both factors are likely at work.

Given all the attention on the lifecycle of companies, Randawa reminds us that the customers have a lifecycle, too. And as customers get older and their lives become more complicated, so will their financial needs. “Customers are adulting and maturing along with your company,” Randawa said. The customer who only needed a savings account and a debit card today may be seeking financial advice – let alone a car loan, a mortgage, or a college savings fund (or two) – sooner than anyone thinks. As such, Randawa believes that successful fintechs will keep this in mind and come up with innovative ways to respond to these needs as they arise. “The successful fintech,” she said, “puts the customer at the center, at the heart of their service and innovation.”

There is a challenge when it comes to writing about an event like FinovateEurope when you’re busy covering live demos, hosting on-stage fireside chats, and conducting off-stage video interviews. On the one hand, there’s a lot you’re going to hear and see. On the other hand, however, there’s a lot you’re going to miss, as well.

With that in mind, my apologies if I overlooked your favorite demo or keynote presentation in this “day-after” review of what I found most memorable at FinovateEurope. Better still, drop us a line and let us know just what kind of magic moment you had at our annual European fintech conference in London last week. We’d love to hear what you think!

Bringing the “E” the “S” and the “G” to the ESG Party

The maturation of the ESG (Environmental, Social, Governance) movement in fintech and financial services was on display as early as rehearsal day (the day before FinovateEurope officially opens when demoing companies practice their presentations on stage). It was impressive to see the number of companies that were offering solutions to make it easier for banks and FIs to leverage technology to better track their – and their customers’ – carbon footprint. Innovators like Connect Earth were among the most prominent. But companies like Storied Data, Topicus/Fyndoo, and OpenFinance also made it a point to show how their technologies gave institutions often granular insights into not just their environmental impact, but also into ways to minimize it.

From the main stage, ESG was also a theme that speakers returned to – often emphasizing the importance of connecting the “S” or “social” component of ESG with the “E” or “environmental” component. Sanghamitra Karra, who runs the Inclusive Ventures Lab at Morgan Stanley, reminded attendees during her Wednesday morning Fireside Chat that those who live in the most economically and socially underserved conditions in society are often those who are the most vulnerable to the challenges of climate change.

And in the wake of the Silicon Valley Bank (SVB) crisis, it is easy to see how “G” or “governance” has become an increasingly important issue for those who work for and rely on fintechs and financial services organizations. While some critics were busy trying to blame SVB’s woes on “wokeness”, or an inappropriately intense focus on diversity, equity, and inclusion, other more astute observers noted that Silicon Valley Bank, for example, did not have a Chief Risk Officer for much of 2022.

Crypto Still Out in the Cold

As the crypto winter slowly metastasizes into what FinovateEurope 2023 keynote speaker Steven Van Belleghem referred to as a “crypto ice age,” it was probably no surprise that the number of demoing companies boasting their cryptocurrency bonafides at FinovateEurope this year was low.

That doesn’t mean that there was zero discussion of cryptocurrencies at FinovateEurope this year. But what it does mean is that there has been a reckoning during which it looks as if digital assets like Bitcoin and ethereum will have to take a backseat while those innovating with the underlying blockchain technology search for better use cases.

Fortunately, there is a precedent for the path cryptocurrencies and blockchain technology may be forced to pursue over the next 5-10 years. In the same way that it took almost a decade for the promises of the dot.com era to be realized, so too may a few dark years for crypto be just what the industry needs in order to figure out how its technology can be best used in order to solve real world challenges. Beware of solutions in search of a problem, Van Belleghem warned from the FinovateEurope stage last week. And while he was talking about enabling technologies writ large – from embedded finance to the metaverse – those innovating in the cryptocurrency/blockchain space would do well to heed his advice.

CX as the Killer App

Whether the task was right-sizing the responsibilities that financial institutions have to ESG concerns, or understanding that building new products alone is not enough to help people solve problems, the solution offered was both consistent and clear: focus on the customer.

Want to improve your carbon footprint – or help your customers do so? Make it easier for customers to access the data and insights they need in order to make the changes they are often eager to make? Want to see more innovative technologies in the hands of more consumers? Make interfaces more intuitive, more seamless, and with greater interconnectivity and interoperability. Think more fintechs should be using your tools and platforms? Leverage low- and no-code building blocks to enable innovators with more modest technical resources to be as creative as larger, better resourced firms.

It has been a cliche in fintech and financial services that “every year is the year of the customer.” But at this moment of retrenchment – with fintech funding down, crypto crashing, and new enabling technologies still en route to proving their true utility – keeping the customer’s needs top of mind might be the best strategy for weathering the current storm and emerging unscathed when the clouds finally do part.

Fintech 2023: Don’t Call it a Comeback

From the crypto crash and subsequent crypto ice age to the Silicon Valley Bank crisis, there has been a headline sense that fintech may be entering a slowdown period. Very little of this was in evidence at FinovateEurope this year. Chris Skinner reminded us that great things often emerge from the rubble of dashed dreams. Hundreds of fintech and financial services professionals braved the turbulent winds at Heathrow airport (as well as a tube strike) to mix, mingle, and talk shop as our return to live events continues.

The desire to innovate in our industry remains strong. And with a focus on improving the lives of everyday customers – from individuals and families to businesses small and large – we are optimistic that fintech’s best, most productive days, are still to come.

Photo by Drew Powell