With the new year comes new expectations for FinTech firms.
The hype cycle of 2021 has resolved — dissolved might be the better word — in the face of falling FinTech valuations, giving way in the harsh climate of 2022 to a more grounded approach to building digital finance businesses on more than big dreams and iffy propositions.
PYMNTS’ Karen Webster invited Drew Edwards, CEO of Ingo Money, to lend his no-nonsense observations to our “Executive Insight Series: Top of Mind,” and he took aim at the pack of chastened FinTechs that are having to alter their operating models given the new reality of investor expectations.
“Everybody is trying to figure out the new reality, at least in that FinTech world, of their roadmaps and their resources,” he said. “They’re still looking to add functionality and close gaps, but I get the feeling that they’re looking for partners that can do more than one thing for them, that can create some efficiencies in this process.”
Edwards said what’s top of mind for the FinTechs he’s speaking with is money mobility for whomever their user base is — B2C or B2B — which triggers other discussions about fraud and the like. This, as he said a new price sensitivity has taken hold of FinTechs running low on venture capital funds.
It depends on the business and vertical. Using restaurant scheduling platform Seven Shifts as one example, he said they’re leaning into payments because of competition for scarce workers.
“They’re all looking for that competitive edge to be able to win those workers, or it’s already table stakes, and they’re trying to stay on par,” he said. To win the hiring game in dining means wage access, which is why there’s a sudden obsession with adding those features.
See also: Neobanks Decimate Staff as They Chase Sustainable Profits
Neobanks Feeling the Nudge
Neobanks are dealing with different dynamics.
Driven by customer experience, features and functionality, Edwards said, “as leading players add more functionality, we’re getting phone calls like, ‘How do we do that? What can we do with P2P? How do we do money-in faster? What have you got on bill pay?’ Market by market, it’s driven by their competitive environment.”
With the neobanks scrambling for more grounded (and profit-generating) business models with venture capital taking a holiday, fraud is now also top of mind.
We see this in the study “The FinTech Fraud Ripple Effect,” a PYMNTS and Ingo Money collaboration, which found that FinTech fraud losses are averaging 2% off the bottom line or roughly $51 million per year in annual losses, depending on size.
On that front, Edwards said, “There’s certainly a change in the temperature and the climate. Instead of it all being about customer acquisition and growth, growth, growth, they’re all [saying] we’ve got to get this thing to break even on this timeline,” and with security.
Half-jokingly, he added: “When you’re doing business with FinTechs and you’re a payments company like we are, everybody’s going to have 10 million accounts, and they’re going to be this big, and it’s all up and to the right.” That kind of hyperbole is getting nudged out by reality.
Now the FinTechs coming to Ingo are bringing hard numbers — this is how many customers we have, these are the transactions we’re doing, this is what it’s costing, these are our problems — and Edwards said, “if we can zero in on that part of the conversation instead of them just trying to be pie in the sky, how big they’re going to be and beat us down on price, those are healthy conversations that lead to a healthier place for the industry.”
Not All Will Make It
Throwing some more harsh reality on the FinTech good-time campfire, Edwards told Webster: “We all know that everybody’s not going to survive in this environment.”
“I believe the ones that do just get stronger. I’m hearing more often than I did a year ago, ‘How hard is this to implement and how long does that take?’ because everybody’s got fewer development resources.”
It’s bringing about more introspection among the neobanks especially, many of which have grand plans for breaking off a piece of the banking and payments pie, but it’s a heavy lift.
“That’s driving … this need to add money mobility faster because their customers are screaming for it. The neobanks are further down that path in terms of money-in-money-out, but they’re struggling with fraud and they’re struggling with cost,” he said.
Add to that the difficulties of doing checks safely, doing P2P at scale versus Venmo and PayPal, and related issues, and “that’s what’s top of mind with the FinTechs we’re dealing with,” he said.
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