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Leeds-based FinTech Panintelligence dives into the future of FinTech SaaS in new thought-leadership piece

The future of fintech is dependent on overcoming several difficult hurdles if the conditions seen in the last 18 months continue. Ask many in the space, and you’ll hear stories of investment shortages, escalating churn rates, and market consolidation.

However, although horror stories fill the Fintech space, at the forefront of most Fintech leaders’ minds is innovation – it is a must – an absolute need. Competition is fierce. Investment, generally, has slowed. But amongst it all, the opportunity is there.

FinTech North is delighted to share some interesting FinTech trends, delivered by Leeds-based FinTech Panintelligence, featuring insight from industry leaders such as FINBOURNE, Starling Bank, incuto, Lenvi, Mutual Vision, OnePay, techUK, and Tred to learn more.

The evolution of Fintech SaaS

The Fintech industry is rapidly transforming into a sector almost exclusively served by SaaS. Globally, there are over 5.4k[1]Fintech SaaS companies in operation.

Despite this positive momentum, a significant challenge looms over the Fintech landscape — the issue of investment, or rather, the lack thereof. Fintech firms saw a significant 51%[1] funding decrease in October compared to the same time in 2022.

As Peter Kirby at Tred says; “It’s important to recognize that investment is slowing across all sectors, not just Fintech—you only have to meet fellow founders and swap notes to see that it’s tough out there.”

However, amidst these challenges, Artificial Intelligence (AI) has emerged as a game-changer. The rise of advanced AI, such as Causal AI, has introduced an interesting dynamic.

Fintech faces many new challenges that threaten even the biggest players in the industry. This daily reality motivates VPs of Product to respond, reassess, and revolutionize their strategies.

As the quest for disruption unfolds, pressing questions arise:

  • Which Fintech segment will lead the way?
  • What technology will be the harbinger of the most disruption to the industry?
  • Is artificial intelligence (AI) a friend or foe to the sector?

The investment landscape of Fintech SaaS

As of October 2023, Fintech SaaS has witnessed $2.13 billion[1] in equity funding across 122[1] rounds. Comparatively, during the same period in 2022, over double the amount ($4.38 billion[1]) was raised in nearly double the number of rounds (231[1]).

However, the comparisons between recent years are not straightforward. In 2021, investment surged following the Covid-19 pandemic. Much like the 2008 financial crisis sparked customer demand for innovative banking solutions, the pandemic acted as a catalyst propelling Fintech SaaS to new heights. The influx of funding propelled the industry into the long-awaited Fintech revolution.

Challenges in Fintech SaaS investment

The lingering effects of the Covid-19 pandemic left investors with surplus capital but uncertainty about where to allocate it. Fintech emerged as an apparent choice, though not without its risks.

While investors enjoyed a period of abundant opportunities, they were aware that it wouldn’t last indefinitely. The past 18 months have tested the resilience of the investment landscape, with many Fintechs facing unexpected challenges.

Moreover, the steep rise in interest rates and inflation in 2023 has further complicated the investment landscape. European Fintechs, accustomed to significant VC funding, now encounter formidable barriers.

Richard Carter at Lenvi highlights scalability as a major barrier to investment. “One of the main barriers to getting investment is down to scale—it’s one thing being able to roll out a proposition, but another to get it to a position that could justify external investment is another matter.”

Despite the optimism surrounding challenges, one hurdle remains persistent: risk aversion. In the current environment, robust investment cases are essential.

Neil Harris at OnePay emphasizes the importance of profitability and trust in securing investment. “The investor community is much more cautious and is looking for either profitable businesses or businesses with a super solid pathway to profitability.”

To sum up: Fintech SaaS is undergoing a cautious recovery from the VC funding slowdown, with investors prioritizing capital efficiency and profitability. Investors now prefer reliable business models over risky technology investments, reflecting a change in the investment landscape.

The dynamic and competitive landscape of Fintech SaaS

Competition has reached unprecedented levels, amplified by a wave of increased consolidation that adds an extra layer of dynamism.

This trend, however, is wider than the consumer space. B2B Fintech companies are creating all-in-one platforms, just like B2C Fintech companies. Pursuing dominance in this space has motivated a competitive race, compelling smaller Fintech entities to consolidate. The goal is to improve what they offer, stay important, and avoid becoming outdated in this quickly changing environment.

Securing growth among the Fintech SaaS competition

In navigating the competitive landscape of Fintech SaaS, some entities find success by adopting a niche approach, focusing on addressing specific gaps in the market.

An avenue for growth lies in the modernization of outdated systems, such as traditional banks, with strategies such as transitioning to the cloud and incorporating AI technologies. Hybrid and parallel deployment models enable the integration of both old and new elements, fostering a seamless transition.

The most strategic SaaS businesses go beyond merely offering software; they delve into the intricacies of workflows and data. By deeply integrating their services, these entities become essential to how businesses function—a successful strategy that surpasses traditional software solutions.

Data plays a pivotal role in driving action and disrupting long-standing power structures. The industry prepares for substantial and immediate shifts in power with the increasing accessibility of data. These changes will impact how businesses operate and compete in the evolving landscape.

The force driving Fintech SaaS innovation

Speed, flexibility, and efficiency are driving the advancement of cutting-edge technology in the Fintech industry.

It’s interesting to think about how market analysts predicted that SaaS would have a moment but might not last. Contrary to such projections, approximately 85%[2] of business applications are now expected to be SaaS-based by 2025.

For Fintechs, SaaS proves indispensable, offering the ability to optimize resources and achieve flexible scalability. Gone are the days of investing in servers to host software; SaaS provides a cost-free and resource-liberating avenue for go-to-market software. This liberation of resources enables companies to redirect time towards operational enhancements, research and development, and, crucially, customer-centric initiatives.

The linchpin of success lies in identifying technological solutions that seamlessly embed, adapt, and scale within an organization.

As Richard Carter at Lenvi emphasizes, “Historically, organizations would buy packaged software and rely on the provider to modify and manage it. Or organizations (would) build their own solutions, (which are) pretty complex, particularly when you factor in the regulatory elements. What you really need is something in the middle, i.e. a packaged platform/solution that you can then develop yourself.”

The future of Fintech SaaS innovation: A glimpse ahead

In Fintech SaaS, the next frontier is all about being fast, flexible, and giving users a great experience. The spotlight is now on embedded technologies and AI, as their direct integration into SaaS applications allows Fintech companies to swiftly implement changes and innovate without causing disruptions.

How can Fintech SaaS providers innovate without creating or managing new features? The solution is to use ‘prepackaging’ methods by directly adding no-code/low-code tools like embedded analytics into their products. This strategic integration empowers Fintech companies to stay at the forefront of innovation, delivering enhanced features seamlessly and efficiently to their user base.

It’s not about innovating for innovation’s sake. It’s about delivering value, securing existing revenue streams, and taking advantage of new market opportunities.

The future of Fintech SaaS will be proactive, not reactive! To read more insights from experts in the Fintech space, visit the Panintelligence site here and read the full Fintech series.

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