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A Resilient Ecosystem: Exploring The Fintech State of the Union Report with Discover® Global Network

Despite a notable $30billion funding decline as well as instances of slow growth, there was still strong confidence in fintech’s future from investors at this year’s Money20/20 USA in Las Vegas, as underpinned by findings from global payment company Discover® Global Network’s 2023 Fintech State of the Union study.

The research study, conducted by Discover Global Network with 451 Research, a part of S&P Global Market Intelligence, is known as the most comprehensive of its kind in the industry due to its size, global reach and depth of insights. More than 5,004 consumers, 852 fintech vendors in VP, C-suite and founder roles, and 83 venture capitalist respondents, provided global perspectives in the third annual edition.

Katelyn McCarthy, VP payments strategy and business development at Discover Global Network, joined Jordan McKee, research director at 451 Research, and Tom Brown, partner at NYCA Partners, on The Exchange Stage at the Venetian Conference Centre during Money20/20 USA – one of the world’s biggest and most influential fintech conferences – to share insights from the study, including the trends to watch and how firms can navigate and find success in evolving the fintech ecosystem.

Brown captured the essence of the evolving fintech landscape, saying: “The old fintech can’t come to the phone right now, because it’s dead. And we’re at the sort of pivot point between what fintech was for roughly 12 to 14 years, to a new era.”

Poised for growth

 Their discussion revealed that fintech funding is down $30billion year on year, with three in five fintech portfolio companies experiencing slowing growth, yet venture capitalists have strong confidence in fintech opportunities. According to the research, 94 per cent of venture capitalists have a strong growth outlook for the fintech market over the next five years.

Significant growth has been anticipated due to the growing consumer adoption of digital payments – 89 per cent of consumers have used at least one type of digital payment service over the past 90 days. Fintech remains in the top three sectors for investment, as 63 per cent of respondents strongly agreeing that there remain many opportunities for disruption by startups in the fintech sector, with a further 60 per cent strongly agreeing that exit opportunities will continue to have strong return potential.

With this in mind, two main areas of investment can be seen when looking at the results of the study. The first is a continued focus on addressing consumer demand, specifically around frictionless checkout. The opportunities are there for fintechs to focus on the drive towards an experience that requires as little thought as possible around making a payment or keying in payment details. The second main area of investment revolves around a focus on innovating and modernising payments infrastructure, with new solutions that build upon legacy infrastructure or replace it altogether.

“The fintech ecosystem is constantly evolving and fintechs need to make informed decisions to stay ahead of the competition and continue to meet the goals of their business models,” commented Katelyn McCarthy, vice president of payment strategy at Discover Global Network. “Our study highlights where fintechs can focus to improve competitive positioning, meet the payment needs of consumers, and to work with the right  partners including payment networks.

“Discover will continue to provide payments expertise, a robust network platform and collaboration on solving customer needs through collaboration in the ecosystem.”

 Open to collaboration

The discussion moved to explore why partnerships matter in this space and the importance of a partnership strategy to fintechs wanting to get ahead.

Partnerships and other collaborations, particularly when thinking about those with payment networks, allow fintechs to be able to scale more efficiently while also delivering greater value to their end users.

“Partnerships are a critical ingredient to the success of the entire ecosystem,” said McCarthy in an interview with The Fintech Times at Money20/20 USA. “Particularly for fintechs as partnerships are a lever for more customers, scaling growth and lowering costs – they’re critical for every participant in the ecosystem.”

She continued: “There’s a great opportunity for fintechs to also look at ways to partner with others that they might have been wary of in the past, there’s a lot of problems to solve and there will be receptivity to working with fintechs in a more robust way.”

The study corroborates this and found that partnerships are a cornerstone of payment ecosystem success with VCs placing a heavy emphasis on fintech partnership strategies. A huge 98 per cent of venture capitalists say partnership strategies are critically or somewhat important to the success of their fintech portfolio companies, with 59 per cent of VCs believe it’s critical for fintechs to build strong partnerships with payment networks.

McKee commented: “What really stood out to me about this year’s study was the emphasis that the ecosystem as a whole was placing on partnerships. When we talked to venture capitalists as part of the research, they’re really thinking about the role of partner ecosystems within those that they’re considering for investment.

“They’re looking for that story around scaling efficiently and sustainably, and we see a very similar mentality talking to fintechs. They’re looking for mutually beneficial partnerships that can add customers to their business, bring them credibility and help with technology enablement. So, as we think about the macro-economic pressures that are facing the industry, those that can find those successful collaborations are those that are able to grow their business in the most economical way possible.”

Ninety-one per cent of fintechs are reliant on payment networks as part of their strategy, with 48 per cent of those having significantly increased their reliance on payment networks as a result of economic pressures.

“The more fraught relationship frankly – and it’s not because you don’t have good people on both sides – is between banks and non-banks, ” said Brown. “There’s just a fault line that cuts between insured depositories and everybody else, and insured depositories are sometimes put to very uncomfortable choices about what kind of businesses and what kind of customers they’re going to support.”

Indeed, Mckee offered useful advice for fintechs as 2024 approaches: “Fintechs need to stay laser focussed on the problems they need to solve and be very intentional in how they allocate resources and architecting their strategic roadmaps as we head into 2024.” 

Watch The Fintech Times chat with Jordan McKee and Katelyn McCarthy

Discover Global Network

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