Fintech companies and startups have witnessed a significant drop in funding this year. However, their products and services continue to be embraced by younger consumers, thanks to tech-driven innovations reshaping the financial services sector.
Global fintech funding has seen a sharp drop due to macroeconomic issues. Data from CB Insights reveals a 33% quarter-over-quarter (QoQ) decrease in funding in Q2 this year, following a 21% drop in Q1. Moreover, mergers and acquisitions exits also fell by 30% in Q2, hitting the lowest level since Q3 2020.
Current economic inflation, skyrocketing interest rates, and a steep rise in the cost of living have led both consumers and businesses to reconsider their financial standings, anticipating a potential recession. Amid this macroeconomic volatility, companies across sectors are downsizing, including tech and fintech giants who are making layoffs to channel funds towards growth and development.
Yet, amidst investors retreating and companies shrinking, fintech remains robust among young users who appreciate its technical and digital tools catering to their financial needs.
Fintech is a Hit Among Millennials
Beyond conventional banks, a study by financial services technology firm FIS (NYSE:FIS) underlines the influence of fintech on young American consumers.
Yanki Onen, CEO and founder of wamo, an e-money and business financial platform, believes this is an opportune moment for smaller fintech firms to penetrate the young consumer market, offering avenues for growth and experimentation.
Despite sluggish investor activity, Onen observes that fintech continues to play a vital role for younger consumers and entrepreneurs in carrying out cross-border transactions and managing their finances.
The study found that approximately 32% of millennials are inclined to use banking services and products offered by fintech or neobanks in the upcoming year. Surprisingly, only 13% of Gen Z respondents, considered “digital natives”, stated a similar preference.
Young consumers are increasingly drawn to embedded payment experiences and financial services, a trend spilling over to avant-garde explorations such as the Metaverse. Over 24% of millennials surveyed by FIS indicated a likelihood to utilize Metaverse-based banking services, including investments and insurance.
Onen’s platform, wamo, clocked transactions worth more than €350 million in the first nine months of 2022, targeting €500 million by year-end. Wamo serves approximately 2,500 customers across 31 countries globally.
“Creating a new fintech brand amidst a pandemic and economic uncertainty necessitates agility and market-fit products and services,” says Onen. He emphasizes that consumers, particularly younger ones, are seeking tailored, embedded financial and tech experiences.
A millennial Disruption Index (MDI) survey revealed millennials are willing to switch banks or financial service providers. Notably, around 70% of respondents were more excited by new offerings from tech giants such as Google (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Paypal (NASDAQ:PYPL), and Block Inc. (NASDAQ:SQ) compared to their national banks.
Boosting the Digital Economy Globally
Younger consumers are keen on leveraging technology that has been a catalyst for the global digital economy.
Access to these tools benefits them personally and enables smoother, global transactions. Cross-border transactions have particularly seen a surge in developing nations during the 2020 pandemic.
The widespread uptake of technology and the Internet of Things (IoT) has allowed fintech startups to mature steadily. Consumers in developing regions like Africa are finding tailored solutions for their financial requirements.
A Mckinsey report predicts the African fintech startup ecosystem will grow approximately 10% annually, generating over $230 billion in revenues by 2025.
To ensure sustained growth of fintech in developing regions amid economic disruptions, Onen highlights the necessity to improve private and public investment in fintech infrastructure and boost consumer exposure.
Onen opines that disruptive technologies and digital integration have expedited the awareness and accessibility of financial services and products. “Fintech startups have managed to bridge the gap, addressing consumer problems, particularly concerning the financial needs of younger users.”
The rapid penetration of fintech among young consumers offers smaller startups, like wamo, opportunities to cater to these users’ highly specific financial needs. However, the upcoming year won’t be without challenges, and fintechs must strategize to grow and develop resources demanded by a potent consumer market.
Fintechs should focus on long-term developments to ensure all generations, present and future, have access to a range of financial tools for a seamless, personalized experience.