The Future for FinTechs: A Year of Evolution Rather Than Revolution
In this blog, we explore the operating model of FinTechs as they navigate and adjust to challenging macroeconomic circumstances.
Future models for FinTech’s
Amid interest rate hikes and heightened regulatory scrutiny around capitalisation and risk management policies, many FinTechs are dealing with subdued funding, forcing them to focus on accelerating their paths to profitability while honing cost controls. The question this poses is: How do those in the FinTech industry make progress within a macroeconomic context that’s likely to remain constant for the near future?
To simplify the answer, we can group FinTechs into two cohorts: those that are established and those still building toward that status.
- Established FinTechs
Having already implemented cost control measures and achieved profitability, established FinTechs’ strategies in 2024 are likely to shift focus away from these aspects back to growth.
Growth strategies could be anchored on new client acquisitions in core areas, diversification into new product categories, and identifying and executing ways to further monetize their existing client bases.
- Emerging FinTechs
These FinTechs could include B-corps, new-to-market alternative finance or payments providers, or those in emerging sub-sectors like Insurtech or RegTech which are in the process of implementing cost controls and their paths to profitability are still being forged.
In this category, there are few FinTechs with proven business models; they’re likely to be more niche focused or have hero products with a sizeable base. This will be the year they’ll need to consolidate operations, tighten risk policies, and focus more on streamlining processes and cost bases.
FinTech operating model: What to focus on in 2024
Within these two cohorts, there are likely to be three core areas of focus for FinTechs seeking to achieve or maintain sustainability in 2024: cost discipline, measured growth, and regulatory and corporate governance.
1. Cost discipline
Strict cost management rather than revenue growth is a key differentiator for FinTech profitability. Their main priorities should include shifting focus from signing up more customers to signing up the right customers.1 It’s notable that good customers are typically minimal risk, and investing in solutions that can quickly separate these from high-risk prospects is a potential path to profitable growth.
Access to robust and relevant data sets and analytics — both internal and external — is essential to successfully address these areas of focus.
2. Measured growth
In 2024, value creation via sustainable, profitable growth can be best achieved by ensuring the core business is viable, prioritising existing customers and maximising customer lifetime value. FinTechs naturally lean into delivering greater digital experiences built on secure, intuitive and fast transactions and interactions, and there are clear, meaningful opportunities for them (especially those established in their core business areas) to explore new, adjacent segments or geographies.
3. Regulatory and corporate governance
Innovating on the right side of regulatory frameworks is fundamental, and product and solution designs should focus on regulatory compliance and good data governance from day one. It has always made good business sense to do so, but as FinTechs become more mainstream, more regulatory scrutiny is likely.
In the UK, we’ve entered a new era of consumer care — with the Financial Conduct Authority (FCA) requiring firms within the financial services sector to prioritise customer needs and empower them to make informed financial decisions. For FinTechs, there are practical approaches to ensure compliance now and in the long term. Key considerations include learning how data and insights can help deliver the best consumer outcomes, including assessing affordability and spotting signs of financial stress and vulnerability, and driving credit education with your own customers.
Business models must comply with the prevailing regulatory environment, and it’s worth investing in and adhering to risk, compliance and security standards. Even more important is actively engaging with regulators in each operational environment — with intent to support and shape policy narratives. By focusing on these priorities, there’s robust scope for FinTechs to further disrupt the financial services sector.
Big picture thinking: FinTech’s role in driving better financial inclusion
With 27% of the world’s population remaining unbanked and a further 50% being underbanked, according to the World Bank Financial Inclusion Project, addressing these consumer needs remains a tremendous growth opportunity. Increased proliferation of smartphones has expanded digital channels and generated volumes of valuable data. Telcos in many developing countries are leveraging this data to roll out financial services solutions themselves, while helping FinTechs better understand their customers.
Recent TransUnion forecasts suggest continued, robust demand for consumer credit, including buy now, pay later (BNPL), embedded finance, and wealth management. It’s essential to factor in increasing consumer demand for personalized services. FinTechs can leverage emerging technologies like artificial intelligence (AI) and artificial generative intelligence (AGI) to gain further insights into current and prospective customers and provide more personalized services. However, it’s important they invest in robust fraud detection and prevention capabilities as fraudsters are equally poised to take advantage of innovative technologies.
It’s more crucial than ever that FinTechs deeply understand how their customers spend, save, and invest, and manage their risk profiles. It’s probable that Open Banking platforms will continue to gain traction both with those vendors offering traditional lending and those wanting to innovate with new use cases in different sectors, such as utilities or personal healthcare.
The UK is the second largest destination globally for FinTech investment — with the number of firms projected to double by 2030. There’s a strong possibility 2024 will be a year of evolution rather than revolution. It’s likely to be a year of consolidation and mergers and acquisitions where established FinTechs grow significantly and gain further market share, resulting in a healthier ecosystem that provides more solid ground for the future.
Why FinTechs work with TransUnion
From Series A-funded startups to unicorns, we engineer solutions, big data analytics and test concepts for performance-obsessed FinTechs.
Our FinTech consultants and data scientists work alongside project teams to design solutions to optimise the consumer experience and serve specific business needs. Projects cover the whole customer journey from friction-right digital onboarding — requiring minimal user effort thanks to sophisticated fraud, identity verification, credit risk and affordability capabilities — to turnkey, consumer-centric solutions that promote credit education and empowerment.
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