Following the pandemic’s fintech boom, there was an enormous uptake in fintech startups trying to make their mark in the world. Three years later though, some in the traditional financial market have raised concerns about the potential oversaturation of the market. To understand whether these worries are justified or not, we reached out to the industry for its views.
Whichever section of the fintech sector you look at – whether it be digital assets, payments, neobanking – they have all grown exponentially in the last three to four years. According to Statista, neobanking has grown almost six times over since 2019, while digital payments have doubled. This creates a double-edged blade for fintech startups looking to get into the market, and begs the question, is it oversaturated?
A startup’s double-edged sword
On the one hand, there is a clear and obvious demand for tech services, with predictions only showing growth for the foreseeable future. On the other hand, competitors are also going to see this and want to establish themselves. If there was an unlimited supply of capital that fintechs could make the most of, then this wouldn’t be a problem. Unfortunately, there is a finite amount, and in 2022 this number was much lower than it had been in previous years.
According to CB Insights’ 2022 State of Fintech Report, global fintech funding declined by 46 per cent to $75.2billion in 2022. While there had to be a decline in fintech investment following the pandemic and immediate post-pandemic highs, combining this with inflation and growing interest rates spelt disaster for some companies.
Commenting on this, Konstantin Zaripov, managing director at challenger bank MultiPass, said: “In the last quarter of 2022, global fintech funding reached its lowest level since 2018. This year, there are no signs that the trend will reverse. Many once-promising financial startups are cash-strapped and others have broken business models. Digital finance is here to stay, however, companies that are cash-strapped will go.”
An example of a company suffering would be Nirvana Money, the lending organisation which did not last a month following its official launch. Although the comments were made at the time when his company closed down, Nirvana’s CEO and founder’s remarks support Zaripov’s explanation that the company had a good idea, but couldn’t survive due to the weak economy.
No one is safe
It wasn’t just small startups that felt this impact. A lack of funding forced organisations like Australian Volt Bank, previously perceived as extremely successful, to close.
But why do we continue to see startups emerge if there is such a volatile entry into the market? The answer is simple. Consumer demand. As alluded to by the Statista stats, consumers continue to demand the latest from the providers. However, so many entrants have entered the market that some are stating it is oversaturated. This was especially the case in the MEA region. However, experts from the region explained that this was not in fact the case, and it was fintechs that were breaking apart a previously saturated market.
An oversaturated market?
The issue surrounding gambling on a startup or making the safe investment is not a new one for investors. But when there is higher risk due to inflation and an unsteady economy, investors are more likely to go for the safer option. As such this may allude away from an overly saturated market.
Discussing this Rich Lesser, director at communications fintech, ec1 partners said: “I think that what you’ll find with oversaturation is that only the strongest will survive. In this case, the strongest will be the companies with the most funding and backing and I think a lot of these companies will be part of larger and more established firms.
“We will likely see traditional finance organisations introducing fintech arms to their business which will give them the power to hold out whilst the more individual fintech that are not backed or owned by bigger organisations struggle. In this case, they can try to drive competitors out of the market which in turn will make it less saturated.”
Bring in the regulations
Investment was not the only way to deter an overly saturated market though. According to Yaacov Martin, CEO and co-founder at Jifiti, the fintech bridging lenders and consumers, the introduction of regulations was equally at play: “As a by-product of regulatory interest and economic shifts, this is already in motion.
“The BNPL space was at risk of becoming oversaturated, but since the regulators in many international markets, including the US, UK, Australia and Europe, began to voice their concerns and probe the practices of many fintech players, the market has shifted and contracted.
“Another related action that will also promote natural selection is the requirement for BNPL providers to report to the credit bureaus. Banks already do this, and some BNPL fintechs do report to some extent, but not enough. Those that don’t comply when this inevitably becomes a requirement will need to adjust their practices to survive.”
The customers have the final say
Regardless of investment or regulation, one thing will always ensure a market does not become overly saturated and that is the consumer. If supply outpaces demand, that the supply will not be able to sustain itself and ‘natural selection’ will take place. These are the views of Greg Ott CEO of Nav, the SMB fintech.
“Creating more valuable products from the start is the best way to avoid oversaturation. But again, the power here is in the hands of customers, who will vote with their clicks and dollars. If a company isn’t solving a real problem for customers – and solving it well – the market will rebalance itself in favour of companies who show a true commitment to their customers’ needs and their product’s role in people’s lives.”