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August 9, 2023   FinTech and Alternative Finance, Fintech Services, Fundraising, Investing, Trading, Stories   No comments

How Inflation is Redefining Fintech Strategies and Profitability

Economy | Aug 8, 2023

Inflation - How Inflation is Redefining Fintech Strategies and Profitability

The financial world has always been dynamic, but recent inflationary trends have added another layer of complexity, especially for the Fintech sector. Here's a look at how inflation is reshaping the Fintech landscape

  • Revisiting Inflation Targeting
    • In August 2020, the Federal Reserve introduced the "average inflation targeting" approach, allowing for periods of inflation above 2% to balance out periods below this threshold.
    • This move has raised questions about the longevity of this approach and the rationale behind the U.S.'s 2% inflation target. With the world changing rapidly, some experts argue that sticking to such targets might seem arbitrary and outdated.

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  • Shift to Balance-Centric Models
    • The rise in interest rates has prompted fintech giants like Revolut and Monzo to increase their savings rates.
    • The industry is witnessing a transition from a transaction-centric approach, where profits were made primarily from transactions, to a balance-centric model.
    • This shift encourages customers to maintain balances, leading to increased profitability for fintech firms. The future will likely see more banks offering incentives for customers to hold onto their money, marking a return to traditional banking practices.
  • Higher Interest Rates Boost Neobank Profitability
    • Neobanks, such as Wise and Revolut, that hold significant customer balances can now benefit from higher interest rates.
    • This change allows them to earn revenue not just from transactions, Forex, and card interchange, but also from the interest on customer balances. This newfound profitability enables them to invest more in product development and innovation.
  • Conservative Valuations
    • With rising interest rates, fintech valuations are expected to be more rooted in reality as investors become more risk-averse.
    • The emphasis on brand image within the fintech sector is also growing, with stability becoming a pivotal factor.
    • The era of building fintech solutions without a clear profitability path is coming to an end.

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In conclusion, the Fintech sector is in a state of flux, adapting and evolving in response to inflationary pressures and changing market conditions. As the landscape shifts, Fintech companies are innovating and redefining their strategies to stay ahead of the curve and meet the changing needs of consumers and businesses.

NCFA Jan 2018 resize - How Inflation is Redefining Fintech Strategies and ProfitabilityThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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