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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.”