IFGS 2023: How crisis creates opportunity for fintechs

To kick off proceedings at the Innovate Finance Global Summit 2023 in London’s Guildhall, two of the UK’s growing list of fintech titans sat down to take stock of the past decade and muse on fintech’s future opportunities and challenges.

For the Disruption Then, Now and Tomorrow session, Funding Circle CEO Lisa Jacobs and Zopa CEO Jaidev Janardana discussed how crisis can create opportunity, the constant battle against inertia, and why fintech is still in its teenage phase.

Crisis creates opportunity

Funding Circle CEO Lisa Jacobs

Discussing how Funding Circle was launched in 2010 in the wake of the global financial crisis of 2008, and how the Covid-19 pandemic saw a similar wave of innovation and ingenuity unleashed, the notion that crisis creates an opportunity for firms to innovate was put to Jacobs and Janardana.

Jacobs believes that while crisis spurs and motivates, the solutions borne out of it are often long overdue. “When we started Funding Circle in response to the financial crisis, the firm was also addressing the fact in the decades prior that small businesses were not doing well,” she says.

“They were not getting the money that they needed. But there was a catalyst, and that catalyst was the financial crisis.”

Alongside this much-needed focus on small and medium-sized enterprises (SMEs), Jacobs says there was a shift in how people trusted their existing banks and their relationship with them.

Likening crisis and opportunity to technological innovation and evolution, Jacobs says that similar to how the iPhone and the internet “unleashed a wave of innovation”, the ongoing cost-of-living crisis in the UK will be no different, ushering in “exciting innovations” within fintech and across other sectors.

While the drive to innovate and create new products, services and entire verticals is a major part of fintech and its broadening appeal, Janardana says it often comes up against inertia. Not just in financial services, but as a part of human nature. But crisis has a way of shaking things up and breaking this inertia, allowing innovation to take root.

“In financial services, and I think all of us are guilty of this, we continue to use services such as banking even if dissatisfied,” Janardana says. The silver lining of a crisis is “it actually forces people to really look at their assumptions and think of things differently”, he adds.

For example, even though digital adoption was increasing at a steady pace prior, the impact of the pandemic supercharged the usage of digital services, particularly among the older generations.

“It also meant that consumers actually started thinking about how to save money during the course of the crisis, and look more carefully for better options,” Janardana says. This in turn drives competition which drives innovation.

In contrast, incumbents “tend to be defensive”, Janardana adds, as they often have things to protect as guardians of the status quo. This opens up the field for fintechs and other upstarts to capitalise on these new opportunities.

Teenage dreams

Zopa CEO Jaidev Janardana

Fintech has come a long way in a short space of time but is still relatively young. Innovate Finance CEO Janine Hirt, who was moderating the discussion, likened the sector to a teenager, “listening to a lot of inappropriate music and holed away in their bedroom”. Having looked at past successes, Hirt asked Jacobs and Janardana where fintech is headed. “How are they growing up? Are they going to be okay?”

Jacobs highlights how back-end systems have evolved, making it easier for fintechs to enter the market.

“Funding Circle had to build its entire stack pretty much from scratch,” Jacobs says. “Now, if you want to start a fintech business, there is a huge amount of back-end provision.”

What’s also interesting, Jacobs says, is that many of these newer businesses are now partnering up with and supporting the incumbents, “and I think that’s a large reason why we’re starting to see these improvements in the incumbents as well, it’s quite an interesting phase”.

Fintech is still a relatively new industry, Jacobs adds, but it’s becoming more mainstream, with customers using fintech without realising it. “But I think there’s still a long way for us to go.”

Janardana believes the sector is still a teenager, but a precocious one. “I think the industry has done very well,” he says, citing recent statistics that show 71% of Brits have used a fintech service or product in recent months. “As people become even more technologically savvy and we see that demographic shift, that number is certain to go up,” Janardana concludes.