AltFi asked four fintech executives whether a recession was the right time to launch a fintech.
With Chancellor Rishi Sunak warning it is “very likely” the UK will fall into a “significant recession” after Covid-19, it might seem an inopportune time to launch a fintech.
But, in the wake of the 2008 financial crisis, some of the biggest companies around today first started to plant their roots, including the likes of Uber, Groupon and WhatsApp.
AltFi asked four fintech executives what they thought about launching a fintech during a recession.
I think the right question is ‘should a fintech launch in this recession?’ And the answer is you might not need to.
This isn’t like a normal recession, this is something different. The government has given business the chance to tunnel through the worst of the downturn and survive to see the greener pastures on the other side. So, the usual rules might not apply.
Usually, a fintech (or any tech company for that matter) should try and launch as soon as they can. Finding product/market fit is arguably more important in a recession than in a booming market - very little excess money sloshing about - and you can’t find it if you don’t launch.
But now, companies can legitimately hibernate and reduce burn entirely. So if you need to wait it out, go for it. But if you’re like Fronted and your business could likely see accelerated growth because of these new market conditions, launching is still the right option.
It’s a well-known paradox that some of the most successful technology companies in the world right now were started during the 2008 financial crisis and subsequent recession.
Hard times do many things for startups. It focuses minds, forces prioritisation, vanquishes vanity protects and bonds the team.
The entire premise and promise of fintechs is that we can leverage technology and creative thinking to generate consumer surplus far better than large slow incumbents. There is no better or more appropriate time than now, when things are tough and money is tight, to prove our assertions correct.
This is not to say things will be easy. The won’t. But we must try.
A recession poses a challenge for businesses that want to continue providing essential services to a customer base that will inevitably have less disposable income.
One thing that shouldn’t stand in their way is a lack of financial products, as this could ultimately lead to consumers deciding to spend their money elsewhere.
Fintechs can act as tools to help stimulate businesses, by providing micro-loans and easy-access bank accounts, supporting invoicing and accounting options, and providing digital shop windows through e-commerce platforms and payment facilities.
If what you are bringing to market is a genuine problem-solving solution, there is no such thing as a bad time to do it.
I don't think a fintech founder should be put off launching a business in this crisis. Launching any business is very tough, and doing so during a global pandemic and economic crisis means it will probably be even harder.
There's likely to be much less funding available for startups in the near term, but that doesn't mean you can't have a good business idea nor build a good business.
I really do believe that tough times breed tough businesses, and so the startups that are launched in the next year are likely to have much less funny money thrown at them, and will likely be pushed harder to build businesses that are real, meaningful and profitable.
So there you have it, while others will be put off launching a new company in these challenging times, fintech founders remain unflinching (almost).
Additional reporting by Aisling Finn.