economic downturn
Business Resilience World-Region-Country

Fintechs Must “Trim the Fat Decisively” During an Economic Downturn to Show Resilience

Amid rising inflation and interest rates, and the growing number of cyber threats, businesses are constantly evolving in order to be resilient. This month, The Fintech Times is highlighting how businesses are showing this resilience against a myriad of factors – some within, and some beyond, their control.

When an organisation talks about their reputation, a few things come to mind. The first is who portrays the company – namely the employees. The second is the company’s ability to remain resilient during a tough period of time. And the third and final way a company can work on their reputation is how it recovers from a bad experience – in the financial world, this often means how it responds to a cyber attack. In this article, we hear how companies can remain resilient during a tough economic downturn.

Trim the fat decisively
Markus Prommik, co-founder and CEO, Finfra
Markus Prommik, co-founder and CEO, Finfra

Markus Prommik, co-founder and CEO, Finfra, the embedded lending infrastructure provider, notes that there isn’t one solution to be resilient. It is situational for each company. However, whatever an organisation chooses to do, it must be decisive.

“In times of economic downturn, resilience can be built through focus, cost-effectiveness, and the ability to seize opportunities. This might involve improving the core product or service, reducing unnecessary costs, and enhancing user value.

“The previous economic cycle has shown that an abundance of cheap capital can lead some fintechs into unprofitable ventures. Our advice? Trim the fat decisively.

“Furthermore, downturns often present golden opportunities. For example, in fintech lending traditional banks, with their tightened underwriting criteria, leave a pool of high-quality clients in search of alternatives. This is when fintechs like ours, armed with flexibility and more refined credit scoring algorithms, can step in to offer superior financial solutions. As entrepreneurs who have weathered multiple economic cycles, we attest that resilience is as much about perspective as it is about preparedness.”

Prudent financial management and a strategic growth mindset
Uldis Teraudkalns, CEO of Nexpay economic downturn
Uldis Teraudkalns, CEO of Nexpay

For Uldis Teraudkalns, CEO of Nexpay, the payment provider, a fintech’s resilience hinges on two vital principles: prudent financial management and a strategic growth mindset.

“A proactive approach to financial health is paramount. By being cautious about expenses and diligently maintaining cash reserves, companies can effectively cushion themselves against potential revenue declines. The 2008 financial crisis offers a compelling illustration: firms that had healthy balance sheets, like Apple, were not just better positioned to weather the storm, but they emerged stronger, seizing opportunities that less prepared competitors missed.

“Yet, mere survival isn’t the endgame. To truly thrive, it’s essential to strike a balance between conserving resources and driving innovation. Economic downturns, while challenging, can be reasonable times to advance. Competitors who indiscriminately cut spending on product development and advertising risk ceding market share.

“By contrast, those who judiciously invest in these areas stand an excellent chance to leapfrog the competition. Take the case of TransferWise (now Wise). Amidst economic downturns, rather than retrenching, they expanded their product offerings, capitalising on the demand for transparent and cost-effective money transfers. This allowed them to solidify their market position and stay ahead of competitors.

“For fintechs to remain resilient, it’s not just about battening down the hatches. It’s about navigating the storm with foresight, using strategic investments as the compass to chart a course towards lasting success. Just remember, your reputation is built not only when things go smoothly but, perhaps more importantly, during times of adversity. It’s how you respond to downturns that will define your resilience and set your company apart.”

Look hardships in the eye
Julien Lafouge, CFO, Spendesk economic downturn
Julien Lafouge, CFO, Spendesk

Some organisations look inward at cuts and ways to save money during an economic downturn, however, Julien Lafouge, CFO, Spendesk, spending management solution, explains why organisations should be taking the polar opposite approach. Economic downturns provide an opportunity for growth.

“Staying resilient in an economic downturn not only requires the same 360-degree thinking needed to hold onto top talent, but a business strategy that prioritises sustainable growth.

“One facet of this approach is identifying your greatest efficiencies by taking your growth levers (the buttons you push to bring in more revenue) and amending them to become efficiency levers. Instead of pumping capital into more channels at a greater cost, focus on the channels that bring the best return without costing a fortune. Identify the investments and programmes that bring the most value. In a nutshell, focus on unit economics such as LTV/CAC or CAC payback.”

Creating necessary breathing room to grow during a downturn
Thomas Dolan, president and co-founder, 28Stone economic downturn
Thomas Dolan, president and co-founder, 28Stone

A similar sentiment is shared by Thomas Dolan, president and co-founder, 28Stone, the fintech application provider: “Resilience will rest largely on making sure you have the right technology and the right workforce so that customers are receiving the very highest levels of service and innovation where needed.

“It’s not just about adopting the latest and greatest fad, but ensuring that companies are being given the right tools to not only maintain their business but find new opportunities, even in a downturn.

“Of course, keeping costs under control is very important. While offshoring was once held up to be an ‘ideal’ model, increasingly we’re encouraging companies to look at ‘rightshoring’—making sure that they have the right, high-touch areas close to home and staffed appropriately. All the while being able to move other tasks, processes and development to locations that have lower costs and the best experts on the ground.

“This can give companies the breathing room to make sure they’re protecting existing business and operating efficiently while also driving growth.”

Author

  • Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.

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