Fintech is slowly becoming profitable

By Daniel Lanyon on Tuesday 29 November 2022

OpinionAlternative LendingDigital BankingSavings and InvestmentCrypto

As an industry fintech has typically been known for its venture capital-fueled growth but tougher economic conditions and the move to higher interest rates have prompted a sea change.

Fintech is slowly becoming profitable
Image source: Pexels/Monstera

Fintech profits are the unlikely trend of 2022. 

Amid crypto chaos, a cost of living crisis, covid unrest in China, sky-high inflation, and a dozen other headwinds more and more fintechs appear to be becoming profitable as the year has gone on.

Of course, there have been many other trends which point to an opposing sentiment.

These tougher times for venture-capital backed tech firms such as falling public market valuations, down rounds for established scale-ups and tens of thousands of redundancies.  

But, partly prompted by the seachange in the macroeconomy some notable names in the fintech space have announced profitable forecasts or, in some cases…even full-blown actual annual profits!

Last week it was the turn of ClearBank, the five-year-old cloud-based clearing bank based in London, led by CEO Charles McManus.

ClearBank, which counts fellow fintechs such as Coinbase, eToro, Raisin and Tide among its 200 customers, says it turned a profit in October on a monthly basis as its 2022 revenues to date reached £45.4m thanks in part to the £3bn of deposits it holds.

Of course, there are a number of caveats. It’s just one month, Clear Bank’s accounts are currently unaudited, etc etc - but the news undoubtedly speaks to something of a growing trend. 

OakNorth, Zopa, Starling Bank, Wise, LendInvest, Funding Circle, Allica Bank, CreditShelf, and Zilch have all either announced profitability in some form or another this year.

There are also many caveats among the profitable group as to what profitability means and how sustainable the profits are over the long term. 

Revolut, one of the largest fintechs in Europe, perhaps even the world, may even be moving to a profitable footing. Its founder and CEO Nik Storonsky said earlier this month that the company was profitable. 

“We are profitable now, and we were profitable last year too,” told Sifted.

Although, Revolut is still yet to reveal its accounts for last year. 

For Starling Bank, which in July said it swung to a £30m pre-tax profit for the financial year ending 31 March 2022  from a pre-tax loss of £31.5m for the previous year, growth came from a boom in lending, up 73 per cent for the period. 

How sustainable the drivers of profitability in 2021 are this year - and over the next 18 months or so - as the recessionary pressures build and longer duration lending, particularly to SMEs, becomes a lot harder remains to be seen.

Lenders typically pull back in such times.

We also need to take fintechs profitability into context. 

OakNorth’s profits soared 73 per cent last year to £134m, also driven by a record year for lending. This is an incredible growth rate but large banks’ profits are also growing and are vast.  

HSBC meanwhile booked $3.2bn of profit in the three months to the end of September, a cool $700m more than it was forecasting. Its net interest income, the difference paid to savers and that earned from borrowers, was $8.6bn for the same period. 

Of course, much of this relates to rapidly increasing interest rates in 2022. 

We have also of course covered, a number of companies struggling to raise funds, seeing down rounds, exploring sales, or just simply going out of business

Nonetheless, there is no doubt an underlying focus on sustainable business models has become a dominant fintech trend in 2022. 

And it is starting to pay off…for some.

For fintech in 2023, it looks likely to be a bumpy road ahead. But there is no doubt that hard work and financial discipline as well as a continued focus on growth is starting to pay off.

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