Focusing on a path to profitability key for fintechs amid weaker economy
The industry must maintain a laser focus on profitability and be able to adapt to challenges, says Elevandi’s Rebecca Martin
MOVING business models towards a path of profitability has shifted to become a priority for fintechs amid slower economic growth and the current market volatility
While much excitement was placed on growth areas such as Web 3.0 or talent development in earlier years of the Singapore Fintech Festival, the 2022 edition is focusing on a more prudent theme in line with the current global environment.
The theme – Building Resilient Business Models amid Volatility and Change – was “carefully selected”, similar to previous years, to “positively advance the fintech industry and draw attention to gaps”, said Rebecca Martin, head of strategy at Elevandi, which is organising the festival together with the Monetary Authority of Singapore (MAS).
Elevandi was set up by MAS in 2021 with the mission to foster open dialogue between the public and private sectors to advance fintech in the digital economy.
Martin noted that many fintech founders in South-east Asia have found themselves faced with turbulence for the first time.
“They had experienced a long boom cycle where funding was (relatively) easy to acquire and fintech was the fastest-growing sector,” she said.
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“Revenue generation and profitability weren’t the first priorities of many, and… this had produced a generation of founders unfamiliar with profits.”
The industry, however, is facing shifting conditions, moving from the “extreme highs” during the Covid-19 pandemic – when restrictions accelerated digitalisation – to the current slowdown.
This has been apparent in equity markets worldwide, which have significantly corrected following the post-pandemic bull run.
The high-growth tech sector, in particular, has been among the most affected, with investors unnerved by decades-high inflation and rising rates from central banks to fight it.
The tech-heavy Nasdaq Composite has shed over a third of its value for the year-to-date, while initial public offerings and special purpose acquisition company mergers – which saw robust activity in 2021 – have all but dried up.
Many are also concerned over the possibility of recessions in key markets such as the United States and Europe, as tighter monetary policy and geopolitical tensions weigh on growth.
“Given weaker economic growth and fewer available sources of financing, we should expect to continue seeing major adjustments in valuations as the cost of capital increases and interest rates rise,” Martin said.
“And as a result of some lower valuations, we should expect an increase in mergers and acquisitions.”
The volatile market conditions have made it important for fintechs to refocus their efforts and “prioritise their business models toward a path of profitability.”
Collaborations
An ecosystem approach in which various industry stakeholders work together to reach this goal is necessary, Martin said.
“At the outset of the pandemic, experienced founders and investors started writing letters to their portfolio companies and shared advice on their experience during the previous financial crisis,” she noted, calling it an “important transfer of knowledge”.
Elevandi is aiming to facilitate such discussions during the 2022 Singapore Fintech Festival, including through plenary stages, roundtable discussions, and new activities such as the Founders Peak stage where 50 founders will share how they’re building sustainable and resilient businesses.
The time has also come for both fintechs and regulators to be “building anew”, Martin added.
Regulators could use this time for “experimentation to better understand and support the fintech industry”, Martin said. Examples include the MAS’ initiative to collaborate with the financial industry to explore economic potential and value-adding use cases of asset tokenisation under Project Guardian.
Meanwhile, the broader industry also needs to learn that adaptability, and focusing on the core business are key during downturns.
“The hype has passed and ‘unicorn’ doesn’t mean anything,” Martin said.
Instead, environmental, social and governance factors have become more important, and expectations are for founders to deliver greater value for their customers and the broader ecosystem of stakeholders.
“We have entered the age of stakeholders, not just shareholders,” she said, adding that companies with a focus on partnership would also perform better.
“Those who are willing to work with partners in an ecosystem model and embrace collaboration across sectors have more opportunities to deliver additional value to their stakeholders and address tougher macroeconomic conditions.”
For more stories, go to bt.sg/sff2022
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