Optimism returns to Fintech: How firms can support growth with the right data

The fintech industry has faced major hurdles due to economic ups and downs and changing regulations. This has forced fintechs to rethink their rapid growth plans. Unbridled expansion is no longer viable. Now, fintechs must prioritise sustainable and profitable growth over the long term.

As a major contributor to the economy, the UK fintech sector represents approximately 11% of the global market, currently valued at £6.6 billion. Forecasts suggest a promising future, with its value expected to nearly double, reaching an estimated £13.7 billion by 2030.

Following on from this, a recent study by MHP Group shows that fintech leaders across Europe are feeling optimistic again. The research surveyed over 50 industry leaders from the UK, France, Germany, Italy, and Spain. A strong majority expect their businesses to grow in the next year.

This transition from chasing hyper-growth to pursuing more calculated expansion is an important shift for the fintech sector. It highlights how crucial it is for fintechs to be adaptable and to leverage data strategically as they map out their future growth plans.

Having experienced a lengthy period of bad news, hearing of growth is refreshing. So, what exactly is happening? And what can we expect to see change?

In this blog, we’ll explore the research and share our take. 

Optimism is rising among European Fintechs: A closer look at the research

The fintech industry in Europe is experiencing a surge of confidence, fueled by leaders expecting strong growth ahead. Recent findings from MHP Group show this optimism is widespread, though nuanced by country and a company's maturity level.

In the UK, a remarkable 83% of fintech leaders anticipate growth, the highest percentage across Europe. France follows closely at 80% and Germany at 77%. Meanwhile, Spain and Italy also show strong optimism at 72% and 66%, respectively. 

This optimism correlates with a firm's age and experience. Well-established fintechs that have been operating for over a decade are most bullish, with 79% foreseeing growth. In contrast, only 55% of the youngest fintechs (under 5 years old) predict significant expansion in the next year.

The difference highlights the uphill battle newer companies face in a mature market. Longevity and existing networks give older fintechs an edge when it comes to identifying and capitalising on growth opportunities.

While highlighting established players' resilience, this variance also signals that younger fintechs may need to get more strategic as they navigate terrain favouring incumbents. 

Fintechs pivot to prioritise profits over hyper-growth

Driven by tightening monetary policies globally and the end of easy access to cheap capital, Fintechs are being forced to recalibrate from their previous focus on achieving rapid scale—at all costs—to an intense emphasis on sustainable profitability.

As the cost of capital rises and investors apply more scrutiny, fintech firms can no longer rely on grand growth plans alone. They must demonstrate a clear path to generating real profits over the long term.

This pivot is impacting business operations and investment strategies in several key ways:

• Operational efficiency takes centre stage: Fintechs are laser-focused on streamlining processes and cutting excess costs without sacrificing service quality. Leveraging technologies like data analytics is critical to make smarter decisions and optimise customer engagement.

• Rethinking investment strategies: The era of aggressive spending to simply buy market share is over. Investments must now be carefully calculated based on long-term return potential. Fintechs must prioritise investing in solutions that measurably improve customer satisfaction/retention or open new revenue streams.

• Aligning with profit-minded stakeholders: There's a growing emphasis on forming partnerships with stakeholders—like investors, collaborators, and service providers—who support the company's long-term profitability objectives. Essentially, it means building relationships with those that understand their need for sustained financial health and success, rather than just backing aggressive growth without regard to profitability. 

This change better positions fintechs to survive economic headwinds. But more importantly, it brings the sector in line with the profit-conscious mentality investors now demand as the industry matures. Baking in fundamentals around profitability will likely define fintech's next phase.

Three critical levers for profitable Fintech growth

As fintechs shift from hyper-growth to prioritising profitability, three key drivers have emerged as make-or-break factors: customer acquisition, securing investment, and attracting top talent. How these levers impact different fintechs varies based on the company's maturity and size.

1. Customer acquisition: Effective customer acquisition underpins any path to profitability. Established fintechs often have the advantage of brand recognition to leverage for cross-selling/up-selling to their existing base. Younger fintechs must innovate to cut through noise, whether tapping niche markets or offering disruptive new services. Data-driven, personalised marketing is critical for all.

2. Securing investment: Access to capital remains crucial but with an eye toward funding sustainable growth over rapid expansion. Proven fintechs can attract investors based on track records and solid business models. Startups must sell investors on their innovative solutions and potential to upend markets. The focus is demonstrating an ability to generate high returns steadily rather than grow uncontrollably.

3. Attracting top talent: A fintech lives and dies by its talent. Larger fintechs can offer competitive compensation packages but struggle to maintain an engaging culture at scale. Smaller upstarts can't always match the pay but can sell personalised career growth and an entrepreneurial environment.

The way these drivers impact fintechs diverges based on where they sit in the maturity lifecycle. This highlights the need for tailored strategies aligned with each firm's specific business model and market position.

🔍Let’s look at an example to show how this new way of working would play out in operations. We’ll use credit data purchasing as the use case—this addresses operational efficiency, profit-minded stakeholders and customer acquisition. 

The role of credit data in supporting Fintech growth

One way fintechs can support sustainable growth is through sourcing the right credit data for decision-making. Here’s why:

➡Enhance consumer financial offers: Effective use of quality credit data allows fintechs to tailor their financial products more closely to consumer needs, potentially offering more favourable terms that improve customer satisfaction and retention.

➡Streamline onboarding costs: By identifying the most efficient and cost-effective data providers, fintech firms can reduce the expenses associated with customer onboarding. This efficiency not only cuts costs but also speeds up the time to market for new services.

➡Strategic resource allocation: With better insights into the cost and quality of data from different providers, companies can allocate their budgets more effectively, ensuring that every pound spent maximises value and supports strategic business objectives.

➡Enhance risk management: Reliable credit data is a cornerstone of robust risk management strategies and compliance with increasingly stringent regulations. Choosing the right data providers is critical in these areas.

To sum up: By prioritising high-quality data and informed provider selection, fintech firms can enhance their operational strategies, offering superior value to their customers and achieving more with less. This approach to data is what will define the next wave of innovations and efficiency in the fintech sector.

Harnessing data for a brighter future in Fintech

The optimism reflected in the recent research underscores the fintech sector's resilience and ability to adapt. Across Europe, fintech leaders aren't just feeling hopeful—they are actively redefining their growth strategies to align with new realities in finance and technology. This realignment heavily emphasises optimising operational efficiencies, securing smart investments, and attracting the right talent—all critical for maintaining a competitive edge.

What’s more, leveraging precise data insights—particularly for understanding and selecting the right credit data providers—remains central to these revamped strategies. By tapping into actionable intelligence, fintechs can make informed decisions that elevate customer value propositions and boost financial performance.

Ultimately, the path ahead for fintech is one defined by strategic innovation, where data-driven decision-making and a steadfast focus on long-term profitability will separate leaders from laggards.

Sources:

https://www.newstatesman.com/spotlight/2021/04/why-uk-fintech-key-financial-inclusionhttps://www.finextra.com/newsarticle/44153/european-fintechs-expect-to-grow-business-in-next-year