The Dangers of Investing in Fintech That No One Talks About

Fintech Struggling in the Face of Economic Challenges
Macroeconomic concerns are already putting pressure on fintech companies and startups, even after a stellar year in 2020 and 2021. In recent months, a faltering economy, severe financial tightening by central banks, and surging inflation have all contributed to funding reductions and staff headcount decreases. As a result, venture capitalists and investors are temporarily losing interest in the market. Similar to the once-booming tech sector, fintech has seen layoffs; in the first half of the year, 4,189 people were let go, or 11.2% of the more than 46,700 startup employees let go in that period.
Fintech continued to expand in 2022, but now venture capitalists and portfolio founders are advising businesses and linked institutions to brace for the worst in the event of a downturn. Fintech funding dipped to $74.5 billion globally in Q3 2022, which led some to search for ways to reduce expenses and postpone growth. In spite of this, according to a survey by The Brainy Insights, the fintech industry is expected to be worth $936 billion globally by 2030.
Even though the industry may have promising futures, venture capitalists and investors frequently ignore underlying concerns in their need to diversify their holdings. Particularly during the epidemic, the number of new fintech and startups has increased dramatically in recent years. In order to stay competitive, even established financial service providers have begun to acknowledge the potential and capabilities found in fintech and have expanded the range of services and products they offer.
These business titans have accelerated the development of financial technology, and in the absence of a long-term plan, fintech will increasingly struggle to hold onto clients. This is particularly true in emerging markets, where new entrants have the ability to capture a larger share of the market than established companies can. Cybersecurity poses a concern as well; 96% of businesses and organisations polled in The State of Email Security Report reported having fallen victim to a phishing attempt over email.
Financial Cyclicality and Cybersecurity Issues in the Fintech Sector
Customers and the community may be at danger from digital fraud or theft due to the operational structure of certain firms. While cybersecurity is crucial, smaller fintech companies may find it expensive to deploy. The cost of using trustworthy software has increased due to the growing demand for cyber protocols; smaller businesses frequently lack this kind of software in the early phases of their development.

Fintech companies are widely regarded as among the most inventive startups in the digital economy because they offer the general public stylish and contemporary displays of essential goods and financial services. Fintech has the capacity to comprehend client needs and financial behaviours at a higher level thanks to deep machine learning and quick-thinking artificial intelligence (AI). This could imply that younger and less well-known fintech companies do not have access to the kind of technology needed to improve processes, increase client retention, and develop novel products. In a competitive industry, this could indicate that some fintech companies are using technology that is already out of date, whereas organisations with consistent funding and cash flow tend to be constantly innovating and developing new and cutting-edge services and products.

Venture capitalists and investors should take into account how fintech is expanding the limits of the software and technology offered to clients. Furthermore, adding more sophisticated features can help a business become more competitive and offer a longer-term plan that will be more profitable.

The proliferation of regulations, which has gained prominence as the fintech business grows, is one component of the sector that is frequently disregarded. As an illustration, consider the recent demise of the international cryptocurrency trading site FTX, which has led legislators to further tighten laws on digital assets and cryptocurrency due to the industry’s significant risk to the domestic economy. The speed at which laws and rules are being revised to fit a rapidly expanding sector is the problem, not the absence of controls. Startups and new companies need to be sure they can adapt their business strategy to fit a changing environment and are aware of the most recent legislation. Fintech must also think about how to function and grow in places with diverse regulations, such as those pertaining to financial services and goods, cybersecurity, and customer privacy, among other things.

Finding fintech companies that are pushing the envelope in their field and developing a long-term plan that will provide them a competitive edge is generally seen as advantageous by investors and venture capitalists. Customers in general will continue to be drawn to fintech companies, but venture capitalists and investors may view these companies as either a wise investment or a scam.
Cyber Risks and Strict Regulations’ Effect on the Global Fintech Sector
Due to strict central bank restrictions and increased cyber dangers, the global fintech industry has seen a discernible decline in investment and worker numbers in recent years. Many fintech companies have been forced to fire staff and shift their emphasis away from ambitious plans as the industry’s competition heats up and economic development slows. The entire value of fintech companies has decreased as a result of this unfavourable situation, and most of them have failed to establish and maintain their competitive edge.