As the testing economic climate of today persists, it looks like fintech companies will need to keep a tighter grip on their finances, and consider different ways to commercialise their ideas with the help of various financial actors.
According to the suggestion made by Jeremy Welch, head of KPMG UK’s financial services deal advisory, fintech investors are going to need to be more attentive to cash burn rates, as opposed to a company’s absolute growth.
Fintech businesses that may have been relying on an economic climate which worked off of an abundance of cheap capital, and may be more affected by an economic lull, may have to reset their expectations going forward.
According to Welch, these kind of fintech companies will need to be more attentive to what they are spending their money on, regularly evaluate the efficiency and cost of consumer acquisition channels, and perhaps narrow down their target geographical reach, or the volume of products they aim to launch.
Discretionary spending, or spending made by choice only, will need to be controlled, as according to Welch, some fintech businesses have already thought about layoffs and hiring freezes.
This points to the simple fact that as we go through this economic turbulence, cash is going to become more important.
Despite this, a host of fintech businesses have already managed to raise large portions of capital and are entering this period of economic downturn with strong balance sheets.
Although these companies may be burning through cash quickly, they have enough cash available to allow this, says Welch.
There is no doubt that at this stage of the economic cycle, there are a lot of early-stage companies which have potentially disruptive intellectual property on their side but are just lacking the cash flow to pursue their ideas.
However, those companies could try to commercialise those ideas in other ways.
M&A, for instance, could bring in a lot of potential for large fintech companies, or those with the funds ready at hand for acquisitions, as they could introduce technology as a complementary part of their existing business model.
Otherwise, venture capital or private equity firms could look to combine a few of their portfolio fintech companies in order to create a more complete, well-rounded fintech opportunity.
On the other hand, traditional financial institutions or advisory firms may acquire businesses that may serve to emphasise and improve their existing service.
Some fintech companies may even consider reworking their business model, by transitioning from a business to consumer service to selling directly to other businesses.
Partnerships and joint ventures between fintechs and traditional financial institutions are also an effective route for fintech’s to capitalise on their valuable intellectual property, in these testing times.