Published : 1 month ago, on 07/11/2024

By Jens-Peter Jensen

It hasn’t gotten any easier for fintech companies to secure capital here in 2024. In the United States, for example, the fintech startup ecosystem landed $6.6 billion in total funding during the first six months of 2024, according to figures from Tracxn, less than half the $14 billion raised in the sector during the same period in 2023. ‍

Slowdown, correction, paradigm shift — call it what you will, but the tightening market for capital suggests a new set of rules are in play in the fintech sector. Investors want companies to show they’re positioned to grow sustainably and profitably over the long term. Where even as recently as 2020 or 2021 rapid short-term growth and acquisition of market share were enough to attract capital, now it’s about companies demonstrating that their business models, operational infrastructures and systems, and overall value propositions are built for long-term profitability and can weather headwinds like higher interest rates and geopolitical volatility along the way. 

What exactly does this shift mean for fintech startups and scale-ups in the near term? For starters, they will need to adjust their sights to prioritize the fundamentals of value-creation that ultimately should lead to sustained profitability, focusing on these five areas:

1.Gaining a more thorough, data-driven understanding of your business. For fintech companies, the first and most crucial step toward sustained profitability — and continued access to capital — is to ensure they have deep insight into every aspect of their business. They need to be able to identify precisely where within their operations there are new efficiencies to be captured, and more specifically, where automation can be applied to processes so they can run a leaner business. They also need a clear understanding of cost drivers across the business, with the ability to identify areas where more controls are needed, and the kind of controls to implement. 

It’s also vitally important that they have fresh insight into their business models — the extent to which these models are positioned to continue delivering value to customers and the company based on how well insulated they are from disruption, how well designed they are to withstand market volatility, and how well they’ll hold value because they solve customer pain points. By identifying the products and services that deliver the strongest unit economics, they can allocate resources to the right parts of their business. 

All this is predicated on two things: High-quality, well-managed data, along with robust analytics and modeling tools that can uncover correlations, identify potential efficiencies and show a company the most likely pathways toward profitability based on operational, financial, customer and market data. Data is the key to unlocking this insight — fresh, trusted secure and readily accessible operational, behavioral and transactional data, macro and economic data and more. When it’s intelligently managed and analyzed, data becomes the lifeblood for the decision-making, innovation and value-creation that drive sustained profitability.

2.Putting customers at the center of product design. Whether B2B or B2C, today’s users expect streamlined, solution-driven offerings from fintechs. Fulfilling those expectations requires design thinking, where the solutions you create for end users are just that: they solve a well-defined problem in an intuitive, easily consumable way.

Designing solutions that resonate in the marketplace requires a thorough understanding of your target customers — preferences, priorities, tendencies, expectations and pain points. The better you understand current and prospective customers, the lower the cost of customer acquisition and retention likely will be. To develop that understanding, a company must have visibility into every single customer touchpoint and interaction, along with intelligent tools to draw insight from internal and external data. With all that information in front of you, then you begin shaping customer experiences that elevate you above the crowd.

Part of delivering a superior CX is being responsive by developing new products or services — or refining existing ones — based on your assessment of changing market conditions and consumer needs. Is that best accomplished by developing capabilities in-house or by leveraging another organization’s existing solution through partnership or acquisition? Answering that question takes strong modeling and analytics tools, along with a deep understanding of your target markets and customers.

3.Open interoperability. For a fintech company, long-term profitability depends on your ability to consistently deliver value to customers, whether that’s by integrating another company’s capabilities into one of your products or services, or integrating your capabilities into another company’s offering. Either way, interoperability makes these integrations seamless, so companies can differentiate their business models and services without technology as a limiting factor. Instead, services and business models are developed within domains, independent of the technology that underpins them.

4.Regulatory readiness. With maturity and a place in the financial services mainstream come greater compliance responsibilities, so fintech companies today must maintain a firm handle on which rules and responsibilities apply to them, and ensure they have capabilities in place to fulfill all their compliance and reporting responsibilities. Here’s an area where artificial intelligence, and generative AI in particular, can be invaluable in helping companies understand their responsibilities, keep abreast of new rules and regulations, and ensure they’re providing the right information to the right agencies, at the right time. 

5.Sophisticated risk management. As volatile as financial markets and the financial services business can be, fintech companies must be adept at cost-effectively managing a wide range of risks to protect their customers and their own bottom lines. Here’s another area where intelligent analytics and modeling tools can help. Without them, long-term profitability — and the doors it opens to capital — could be elusive.

Jens-Peter Jensen

Jens-Peter Jensen heads finance solutions for the financial services industry globally at SAP SE, where his current focus is on the changed role of the CFO in times of digitalization and data-driven financials for large-scale banks and high-growth institutions. The various roles he has held throughout his career have focused on risk management, financial accounting, financial services data management, and process integration solutions for banking.