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How Can Fintechs Use Technology In These Uncertain Economic Times?

The COVID 19 epidemic, the Russia-Ukraine war, supply chain interruptions, cost increases, and the current stagflation, which is defined as both low growth and high inflation, have all contributed to the world facing an unavoidable economic crisis. According to a recent IMF study on the G20 countries, rising inflation has caused a monetary tightening cycle that is becoming more synchronized. On average, central banks have raised interest rates by 3.8 times since July 2021.

FinTechs will face obstacles and have chances as a result of growing inflation and a possible future recession. Scaling strategy is one area where the present economic situation is hurting the FinTech sector. The next recession appears imminent, and FinTechs must develop new business models and design their organizations to scale quickly in order to deliver steady revenue growth at the lowest possible cost and with the least amount of resources. It’s a good idea for FinTechs to review their technological capabilities now in order to maintain growth and a smooth transition through the current economic crisis.

In a recession, most firms struggle, mostly because demand (and revenue) declines and future uncertainty rises. However, there are ways to lessen the harm brought on by the economic turmoil. According to research, 17% of the 4,700 public companies they looked at fared very poorly during the recessions of 1980, 1990, and 2000: They went bankrupt, became private, or were bought. However, in the three years after a recession, 9% of the businesses didn’t just bounce back; they thrived, outpacing rivals by at least 10% in terms of sales and profit growth. Bain & Company’s analysis shows that the top 10% of companies’ earnings increase consistently over the course of time and continue to rise afterward since the downturns actually drove them to adopt new technology.

The recession’s effects on fintech

Leaders of significant FinTech companies have raised the alarm about deteriorating macroeconomic conditions at the Money 20/20 Europe trade exhibition. In the loan sector, the buy-now, pay-later company Klarna is seeking to raise additional capital at a 30% discount to its $46 billion valuation, while its competitor Affirm has seen a two-thirds decline in stock market value since entering 2022. Financial institutions will fall farther behind the times as a result of the impending recession, which will also have a significant impact on the FinTech sector.

It becomes extremely important for FinTechs to stay up with the effects the impending recession would have on the sector. The following list summarizes the main issues and effects the financial technology sector will face during the impending recession:

Controlling Loans

During the downturn, the demand and supply pipeline for loans will be impacted, giving FinTechs the chance to capitalize on new opportunities that will not only satisfy but also excite their consumers. Most financial institutions rely on loans to drive their profitability, and because they are the most important aspect of their operations, they are also the most vulnerable to danger when the economy is unstable. In order to build a good pipeline and a solid portfolio from the perspectives of loan origination, loan servicing, and loan management, the lending industries must balance their use of technology.

investing management

Since the global pandemic, digitalization has been the new norm for all businesses, paving the path for FinTechs to offer inexpensive fundraising, account settlement, and collections services. FinTechs have recently made wise investments to enable efficient transactions that are more diverse, smaller, and performed at a higher frequency. However, in order to survive the coming economic catastrophe, businesses will need to make cost-cutting investments like those in technology, streamlining their goods and services, enhancing borrower self-service options, raising resource productivity levels, and many others.

Paying for Things

FinTechs will be severely impacted by ongoing inflation as well as rising interest rates throughout the recession. FinTechs must invest in long-term prospects produced by the deteriorating economic conditions in order to handle the impact. Despite the impending recession, US banks will raise their technology spending by 10.6% YoY in 2022 in order to enable a smoother and better digital payments experience. For the FinTechs to continue growing even amid the crisis, they must take into account the rising acceptance of digital payments among Generation Z and millennials worldwide. Being relevant to the target audiences will enable FinTechs to take advantage of the opportunities brought on by the impending economic instability, for both the B2C and B2B customer base.

Taking care of secure transactions

During the recession, FinTechs will see a sharp increase in fraudulent transactions and suspicious activity. To manage the right flow of business for the clients, FinTechs must be cautious and proactively prepared to invest in long-term fraud control measures made possible by cutting-edge technologies. The perfect cloud-driven technology, this will aid firms experiencing an economic downturn and facilitate solid loan origination and loan servicing with simplicity. FinTechs can manage the post-recession market corrections and the future of the sector by investing in emerging technologies.

Technology is Essential to Avoid the Coming Recession

The protracted recession forced current corporate leaders to reconsider; investing in cutting-edge technology is not a cost center, but rather a business driver. For them, the most exciting aspect of the world’s future is digital. More than 75% of tech executives polled by the CNBC Technology Executive Council said they anticipate their company spending more on technology this year, despite concerns about an impending recession. According to the 142 CIOs polled in J. P. Morgan’s most recent annual chief information officer survey, this year’s IT spending grew to 5.3% from 5% during the pandemic and will reach 5.7% by 2023.

Businesses improved their tech capabilities as a result of the dozen significant recessions that occurred in the last century. The following are some steps you may take to prepare so you won’t get left behind during this impending recession:

Never remain still.

Fintechs must proactively prepare for the slowdown and come up with fresh strategies for recovering when the global economy turns around. It will be vital for FinTechs to select a system that will allow them to grow quickly and operate more efficiently. Investing in such technology would enable you to cut costs continuously across the platform’s lifespan, expedite decision-making processes, automate time-consuming and expensive jobs, and drive exceptional growth with cutting-edge future offers.

Concentrate on modifying your workflows

FinTechs can increase productivity levels far more quickly by investing in customized workflows, which are simple to create, test, and execute amid slower growth. Just as no two economic downturns are the same, neither is the strategy used by firms to weather the impending recession. Due to the fact that tech executives are aware that most organizations start to conserve funds in order to maintain liquidity, investment in technology is typically less expensive during economic volatility. FinTechs will benefit greatly from focusing on and investing in customizing workflows during these challenging economic times because doing so will enable smooth approval processes, bug tracking, content production, and more.

Improve Digital Transformation Speed

A well-planned digital strategy will aid FinTechs in enhancing resource visibility and management, increasing organizational agility and flexibility, lowering costs, improving supply chain management, improving customer experience, increasing productivity, and hastening the development of new products. By speeding up digital transformation, FinTechs will be able to handle the difficulties of the unstable environment, and technology will be essential to seizing new opportunities.

Spend money on cloud computing.

A big economic downturn can make it impossible for your FinTech to survive if you use wasteful technology. The long-term difference that distinguishes FinTechs and aids them in their cost-control approach is investing in cloud technology. It’s time to think about moving to the cloud if your company doesn’t already if you want to survive the impending recession and avoid disruptions.

Conclusion

FinTechs must invest in cloud technology, customer experience, self-service, analytics, artificial intelligence, and machine learning in order to outperform the competition and promote profitable business outcomes despite the unstable economic environment. Your company requires a dependable technology partner if you are unsure of the best course of action and worry that you are in danger. The competence of L’Equipe World Wide in utilizing cloud technology aids FinTechs in quickly achieving organizational agility and scalability. In order to provide a cloud-native, API-first, micro services-based digital lending technology platform for loan origination and servicing, we have made considerable investments in Kubernetes and other Cloud technologies.

Connect with us today to find out more about our products and services and to get the boost your FinTech company needs.