Fintech

Breaking down the Fintech landscape – a perfect storm or cause for optimism?

The Fintech industry encompasses a vast landscape of micro divisions that react differently to economic disruption. The space includes finance sub-sectors such as Payments, Crypto/Blockchain, Open Banking, Consumer and Business Lending. It also includes other more technology focused sectors such as Payroll, InsurTech, RegTech, Big Data and EdTech.

Whilst it’s clear to see that there are pockets of turmoil right across the Fintech sector, there are also areas of continued optimism which merits a more detailed analysis.

Businesses such as Klarna have dominated the news in recent weeks, with announcements of hiring freezes and redundancies. Klarna’s market value has dropped from an estimated $56bn to $15bn.

Trouble in this industry should not come as a major surprise as consumer lending has been growing considerably for the last few years. This has resulted in a flourishing environment largely free of regulation.

When you combine high amounts of unregulated consumer borrowing with increased living costs and relative wage drops, it was always inevitable this point would be reached.

Another factor has been a gradual increase in embedded financial lending from businesses such as Square and Shopify. These companies pose far less risk than the B2C lenders that flourished in the early days of Fintech consumer lending.  

Crypto

In similar fashion, the Crypto sector has 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 such as deVere Group have warned Crypto businesses to avoid making the same DotCom era mistakes that led to confidence freefall.

It is not all bad news though as 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 Payments

 
There are other areas of Fintech that have been far less affected by the current economic turmoil. Digital payment growth is expected to continue for the next 5+ years across Europe, as society moves ever closer to becoming largely cashless. Countries such as Sweden and the Netherlands are already further down that journey than most, but there’s still huge scope for further expansion.
 
There is also potential for the digital payment revolution to continue globally across other continents. 

Digital payment organisations 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 macro-economic picture.

Digital Banking Revolution

This sector has also 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. This was outlined by business leaders at the Money 20/20 conference.

We have seen the likes of N26 admitting how they tried to scale too quickly on an international front, whilst Revolut remain an outlier to this, having recently opened a new Paris office and publicly committed to continued international growth.

Business Lending

In somewhat surprising news, the peer-to-peer lending sector has so far shown no sign of slow down with small business lending up 58% year on year. Firms such as Funding Circle continue to expand their terms and offering, and industry opinion remains positive.

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.

So how has all this impacted recruitment?

The short answer is not a huge amount, outside of the obvious and outlined sectors. 

Fintech vacancies are down 9% in the last 3 months, but this remains favourable vs the wider UK and global economy. It also includes the mammoth drop in vacancies in both Crypto and Consumer Lending.

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.

For some, this economic setback will ensure a renewed focus on employee retention and P2P lending. For example, Funding Circle have recently introduced a £500 allowance to help employees. But for others, the bullish pursuit of industry domination will continue with Fintech unicorns such as Mollie and Adyen having already committed to continuing their growth and expansion.

So where does that leave the industry?

The last 5 years have largely been defined by extreme optimism and sustained growth and asset bubbles within the Fintech sector. With many economists warning that we are now in a bear market, it should not be a surprise that certain pockets of the industry are starting to suffer. 

Signs of a bear market include rising borrowing costs as well as decreased consumer and investor confidence; all of which are quite clearly present in the current UK and global economy. Those factors, combined with macroeconomic pressures such as the Ukraine War and increase in global fuel prices, are quite clearly impacting the sector.

In addition, there are more regional issues such as the impact of Brexit and labour shortages within the UK and US economy.

Hope for the future
 

Despite this pessimism, much of the industry has so far been unimpacted. Whether that continues over the next 12 months remains to be seen. It will largely rest in the hands of shareholders and investors at some of the larger Fintech firms, as well as the wider macroeconomic climate.

From what we have seen, most of those businesses are continuing to invest, banking on this being a minor blip and not a major setback. If that continues, it suggests renewed confidence in the bouncebackability of the Fintech sector.

Strategies for Sustained Success

1. Don’t panic 

As alluded to already, the worst thing shareholders, business owners, and senior executives can do right now is panic. Confidence breeds more confidence, whilst indecision and cautiousness will lead to even more uncertainty in the market.

Take the lead from some of the sector’s unicorns. If they are not panicking and using this as an opportunity for further expansion, that should tell you all you need to know.

2. Retention and Onboarding 

The recent downturn has also coincided with the “great resignation”. It’s therefore imperative to focus on retention and reassure workforces that you are not nervous and have 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. Most people voluntarily leave a new role in the first 12 months, so ensure you give the best possible onboarding experience to keep your net headcount in the black.

3. Graduate recruitment

Nothing speaks confidence like future planning and ensuring you have succession plans in place and investing in graduates highlights this approach.

We can help you put a graduate recruitment strategy in place, having helped hundreds of similar firms in the last 18 months.

4. Targeted Search

Are you wondering why recruitment is still slow despite the market uncertainty? Well, ONS figures show that unemployment is still at an all-time low and that there is still a UK labour shortage. The best way to counteract this is by proactively searching the market to identify the most talented and best performing people through Executive Search

5. Recruitment Process Outsourcing

One of the best ways to be prepared for market uncertainty is by engaging with an RPO such as Exemplia Group as they can provide a recruitment team that can be rapidly scaled up or down depending on your need at the time. This helps to avoid a heavy cost centre and enable the business to be run in a lean and agile way, so as not to impede your own growth ambitions.

We are experts in the Fintech sector and have helped businesses scale, obliterate their cost per hire, and improve their brand reputation. Get in touch today to speak to one our experts for bespoke advice on how to react to market conditions.

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