By Juan Carlos Bruzzo
Moni’s CEO
It appears that the bad news for the fintech sector just won’t stop. From the sensational drop in valuations in March, to the crisis in the crypto world triggered by the mismanagement of FTX, the second largest exchange on the planet. In recent weeks we have seen how companies of various sizes, including some that had positioned themselves on the market in a position of leadership, they had to correct course and have gone from announcing acquisitions, launches and expansions into new markets, face the plight of reporting cuts in their schools.
The macro backdrop and the accumulation of bad news in a relatively short period of time can give the impression, on a superficial reading, that the sector is in crisis or that the fintech business model is not closing down. Nothing is further from reality. The fintech industry comes from an expansive cycle of accelerated growth. It is an industry that did not exist ten years ago and which was gaining ground thanks to the intensive use of technology, the usability of applications and tools and the inclusion of large neglected sections of the population.
This expansive phase, which fueled the proliferation of startups and new players, coincided with a period of highly liquid capital marketswhich he found in fintech companies the ideal environment to channel investments. As in any cycle of these characteristics, investor appetite, the need to finish first, or the attempt not to miss opportunities in this expansive phase, generated a non-selective flow which in some cases granted loans to companies whose “fundamentals” were not solid, or at least not sufficient to project their future sustainability.
Until the end of this phase of euphoria and the market has suddenly dried up funding, triggering a correction factor that is having a full impact on the global economy in general and the fintech industry in particular. We could speak of a bubble and draw a parallel with the dot com crisis of the late 1990s.
Downgrading of valuations, both of public companies and private capital, reformulation of operational plans, suspension of expansion into new markets, change of company focus and the most severe and visible effects, reduction of personnel, unprecedented in an industry in-rising demand for talent, have been some of the emerging aspects of this clear change of cycle defined by an abrupt and almost total cut in the flow of investments.
Faced with this scenario, all the players in the ecosystem have had to adapt to the new conditions, where expansion can no longer be financed with cheap money and business models have to withstand the fire test of real benefits to continue work. Living with what the business generates. Neither more nor less.
This new cycle paradoxically occurs when the fintech industry has not yet reached a degree of maturity and development. For this reason, beyond the dark clouds of this complex situation, we talk a market with great potential for the real possibility of including large segments of individuals neglected by the traditional banking system, implying an exponential expansion of the pie.
The game has gone from the 100m to the marathon and the companies that have managed to develop a solid business model, that can handle it with surgical precision, that can mitigate risk and that add real value to retain their customers and beyond, have an advantage. acquire them with unsustainable promotions over time.
Very specific components add to this situation when it comes to the particular crypto segment, a little more immature in their level of developmentwhich still requires great debates and in-depth definitions, such as whether more regulation is needed to avoid the manipulations and human errors that gave rise to the spectacular fall of FTX.
As in the bursting of the “dot com” bubble, it is not the sector itself that is in question, but the business models and the ability of the players to show sustainable and long-term results, so it is to be expected that the correction factor we are seeing today will lead to a process of readjustment and more consolidation, where we will see in the short to medium term alliances, mergers and acquisitions which will reconfigure the competitive scenario and furthermore, to the extent that this scenario becomes more competitive between the various players, a greater need for differentiation will emerge.
Adapting the quote assigned to Darwin “It is not the greatest that survives, nor the smartest: it is the one that best adapts to change”.
Source: Clarin
