Despite fintech companies and startups seeing a sharp decline in funding this year, adoption of its products and services has been widespread among younger consumers as technological innovation is helping to fuel the financial services sector.
Q3 2022 hedge fund letters, conferences and more
Further M&A exits have also declined by 30% in Q2 this year, the lowest point recorded since Q3 2020.
Red-hot economic inflation, stratospheric interest rates, and the soaring cost of living have seen both consumers and businesses adjust their financial position as the possibility of a recession looms ahead.
In the wake of broad macroeconomic uncertainty, companies in several industries have been reducing their workforce. Big names in the tech and fintech arena have been laying off staff in droves to redirect finances toward growth and development ahead of a possible recession.
Even after a tremendous year in 2021, the tech sector has already lost more than 52,000 workers in the U.S. due to ongoing layoffs, salary cuts and hiring freezes.
Despite investors pulling out of deals, and companies downsizing, fintech remains a stronghold among younger generations as it provides them with the technical and digital tools that help satisfy their financial needs and requirements.
Millennials Prefer Fintechs
Aside from traditional banks, a recent study by financial services technology company FIS (NYSE:FIS) reveals the impact that fintech has made among younger consumers in the American marketplace.
CEO and founder of e-money and business financial platform - wamo \- Yanki Onen, says that it’s an exciting time for smaller fintech companies to tap into the younger consumer market as it provides an experimental opportunity for growth and development.
“Even with the slowing performance of investors and some consumers, fintech remains a crucial part of how younger consumers and business owners conduct cross-border transactions, save and invest their money.”
According to the study, roughly 32% of millennials have said that they are more likely to use banking services and products offered by a fintech or neobank in the next 12 months. Among Gen Zs, only 13% said they will most likely use fintech or neobanks, a smaller than expected percentage for a generation classified as “digital natives.”
Embedded payment experiences and financial services are increasingly more appealing among younger consumers, and it’s flowing over into new-age experiments such as the Metaverse as well.
The same FIS study showed that more than 24% of surveyed millennials are likely to use banking services, which include investments and insurance that are present in the Metaverse.
Onen says that “competition is a common practice, it does however provide companies with a new perspective on what they can provide their clients and how they will reshape people’s understanding of financial technology.”
In 2022, wamo transacted more than €350 million in the first nine months of the year and expects to close off the financial year with €500 million in transactions. Wamo currently serves around 2,500 customers located across 31 countries globally.
“Building a new fintech brand amidst a pandemic and now economic uncertainty means we need to be more agile, and provide the right product and service to the market,” says Onen.
Consumers, and more strikingly, younger consumers are looking for embedded financial and technological experiences that have been specifically tailored to their needs and requirements.
And it’s a telling argument that suggests fintech will only grow even bigger in the coming years.
In recent findings by the Millennial Disruption Index (MDI), millennials were found to be more willing to switch banks or financial services providers. Yet, unsurprisingly enough, around 70% of surveyed millennials said they are more excited by new products and services provided by Google (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Paypal (NASDAQ:PYPL), and Block Inc. (NASDAQ:SQ) as opposed to their national bank.
“We see it in our business model, and we see it in the culture of modern finance and technology, younger consumers want to have more choice and flexibility when it comes to their money,” says Onen knowingly.
Driving The Global Digital Economy
Younger consumers are more eager to access the technology that has in part been helping to drive the global digital economy.
Accessing these tools is not only important to them on a personal level, but it provides them with more seamless transactions that can now be completed from anywhere in the world. The growing interest in cross-border transactions has seen immense growth in developing nations over the course of the pandemic in 2020.
The widespread adoption of technology and the Internet of Things (IoT) has meant that fintech startups have matured more steadily in recent times as consumers in developing regions such as Africa are finding tailored solutions for their financial needs.
In a Mckinsey report, analysts estimate that the fintech startup ecosystem in Africa will grow roughly 10% annually, reaching more than $230 billion in revenues by 2025.
Among the leading challenges that would see fintech in regions such as Africa, and other developing regions continue its exceeding growth through the coming economic disruptions, private and public investment in fintech infrastructure and consumer exposure would need to be improved in the coming years.
For Onen, he shares how the disruption of new technology and digital integration has helped fast-track the widespread awareness and accessibility of financial services and products. “It’s now more possible for people to become part of the financial system, even if they’ve never held a formal bank account.
Fintech startups have been able to fill the gap, and provide solutions to the consumer's problems, especially when we look at what younger consumers want and need in terms of their personal finances.”
The rate at which fintechs are penetrating the younger consumer market leaves smaller startups, such as wamo, with an opportunity to meet the demand from consumers that are looking for a highly-specified niche regarding their personal finances.
The coming year will not be without challenges, and fintechs will be required to position themselves in a way that would allow them to grow and develop the tools and resources a powerful consumer market needs.
The lookout for fintechs would be to place more emphasis on long-term developments to ensure that not only younger generations, but those before and after them have access to a set of financial tools that gives a seamless, yet tailored experience.
