What fintechs can do: Overall funding for fintechs is slowing, continuing the Q2 trend and likely to drop lower before the year is out. The gloomy market outlook has led venture investors to practice stronger due diligence, aiming to be more prudent and keep costs lower. This quarter, fintechs can:
- Focus on profits: Investors will be more concerned with the bottom line and cash flow. For this reason, making sustainable profits will be important if fintechs want to raise funds. Startups hemorrhaging cash to grow rapidly will be perceived as higher risk and will find it harder to secure financial backing.
- Cut costs: To shore up profits, fintechs may want to reduce overheads by scaling down expansion plans, considering layoffs, and rethinking investments.
- Build up cash reserves: These can act as both a buffer against worsening downturns and a war chest for picking up struggling startups at a discount. Canny fintechs with cash can also look to buy cut-price products to bolt on to their existing offerings, thereby saving money on having to develop products in-house.
Fintech market consolidation: The unsustainably huge growth in fintech investment last year made a leveling-off in funding inevitable. We’re now likely entering a period of market consolidation. Businesses that haven't built sufficient scale or don't have solid balance sheets won’t be able to survive without raising more funds. That gives bigger players with healthy business models opportunities to acquire and consolidate their market share.