“While investors, business leaders and some economic models continue to warn a recession is imminent, Wall Street’s most powerful investment bank remains cautiously optimistic” noted a recent CNN Business article. While the article noted that high inflation remained the largest challenge to a “soft landing”, there was significant reason for optimism. “…Goldman Sachs pointed out the transition to more sustainable — but still positive — economic growth “has already occurred, and it looks durable.” The article continued.
As a FinTech executive, or a fintechie as I like to call myself, I share that cautious optimism amongst the doom and gloom of the impending global economic recession headlines. Yes, we have inflation. The cost of living has significantly increased, and we have a war going on in Europe. And the list goes on and on. So why am I optimistic? Historically, crises lead to innovation, and I expect this moment to be no different. I see a great opportunity for fintechs to do good and make an impact in the economy and in the lives of people, where more traditional institutions have failed.
We will certainly see some changes in the fintech landscape. While not every fintech will survive, those that remain will be more resilient. We saw this scenario play out in 2020 during the Coronavirus crisis, where some startups and companies did not survive the drastic shift of change while those that adapted grew exponentially. Another shift was where incumbents started partnering with fintechs to deliver more innovative products to their customers and adoption of digital tools skyrocketed. And let’s not forget that entrepreneurs are a resilient bunch and are used to crises.
Another reason for optimism in the fintech landscape is their position on the forefront of inclusive finance, providing solutions for the significant portion of the “unbanked” population. “Financial inclusion is widely recognized as one of the most important engines of economic development. … Financial inclusion is not just necessary for growth, but to avoid financial collapses within families; 28% of adults in developing countries say they would deplete their savings if they were in need of money for an emergency, yet 56% of these adults do not save at a financial institution.” writes Saad Hirani of UC Berkeley. As we look to the future, it is going to be even more imperative for everyone to be a part of the economy, to fuel the economy. This cannot be done by the current segregation of the financial services where large segments of the population is left behind.
An inclusive finance system can only be attained where access to capital is not limited to a few select populations, where systematic biases and prejudices are eradicated, or at least actively addressed. Traditionally, this topic has not been addressed adequately by financial institutions and incumbents. And it is an area where fintechs are making an impact. Here are a few examples;
-Creating nuanced approach to credit – either by reimagining risk, using alternative data or by providing a different lending approach (such as Upstart).
-Identifying and mitigating biases in decision systems – We make financial decisions based on data and models that have the systematic biases embedded. Don’t just tell me it is biased, tell me what I can do about it. (such as Stratyfy)
-Financial literacy – Young and old, financial education is crucial to making sound financial decisions that impact your life. (such as Goalsetter)
-Access to capital – through cross border payments, remittances (Such as Flywire)
Fintechs are essential to economic growth, especially when times are rough. Through tackling hard to address problems, focusing on multiple aspects of financial inclusion, where others have failed, Fintechs and entrepreneurs can be at the core of the economic engine – improving participation in the economy and speeding a return to growth.
In summary, this is an opportunity for innovation, an invitation for partnerships and collaboration for an inclusive economic future. And I continue to be cautiously optimistic.
 Egan, Matt, CNN Business, “A recession in the US is not a slam dunk, Goldman Sachs says”, November 7, 2022, https://www.cnn.com/2022/11/07/economy/goldman-sachs-recession-outlook/index.html
 Hirani, Saad, “The Importance of Financial Inclusion”, The Sutardja Center for Entrepreneurship & Technology, UC Berkeley, October 5, 2016, https://scet.berkeley.edu/importance-financial-inclusion