2022 has been a year of global headwinds for nearly every sector, and fintech has been no exception.
For start-ups, these challenges have manifested themselves in the form of a slowdown in VC activity resulting in both depressed valuations and a reduction in VC funding. In the absence of external funding, many founders and fintech leaders have opted to streamline their businesses by reassessing their strategies and cutting costs – sadly, often in the form of job cuts – and in extreme situations it has forced founders to shut down their operations.
Profitability and unit economics now top the investor agenda
Compared to the “growth at all costs” mindset that characterised 2021 and even the first few months of 2022, profitability and unit economics are now top of the priority list for investors across the world. We expect to see this “do more with less” attitude continue well into 2023.
On a more positive note, following the tailwinds of increasing smartphone penetration and adoption of cashless transactions we’ve continued to see great strides made in digitising small and medium sized businesses (SMB) operations, particularly in emerging markets where these enterprises are the lifeblood of the economy.
These businesses have historically been left behind by traditional providers and as a result, we’ve seen a significant number of disruptive, technology-led players emerge in the space. VC money has tended to follow across the SMB digitisation value chain, from payments to business management tools.
What I expect to see in 2023
I think in the next 12 months VC activity will start increasing… we are already seeing signs of that with a number of deals being done.
The only thing that will sustain will be around longer timelines for investing as VCs will be keen on doing deep due diligence. Valuations will continue to be pegged to the fundamentals of a company, such as their unit economics, and there will be a focus on high quality transactions where the business models are proven.
We expect the tailwinds around cashless transactions will continue to drive the adoption and penetration of fintechs which fill a gap or solve pain-points for customers in these areas. In addition, regulators will be keener to take on newer innovations – particularly those that are closely related to crypto, given the recent turmoil in the ecosystem.
Consolidation will start to happen in the fintech space in form of collaboration with banks, but also larger fintechs forming strategic partnerships with smaller ones.
Finally, and perhaps most importantly, fintechs must focus on customer experience to make sure they continue to protect their customers from any fraudulent activities in the months and years ahead.
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Tosin Eniolorunda, CEO and co-founder, TeamApt