Strategy Note /
Global

The fintech business models most resilient to macro headwinds

  • We've analysed 24 fintech products across 5 top-down factors: funding, capital, pricing, liquidity and customer demand

  • Resilient business models include insurance comparison, digital payments, digital banking and pawning

  • Vulnerable businesses include POS, consumer and SME financing, plus cryptocurrency and equity/ bond investing

The fintech business models most resilient to macro headwinds
Rahul Shah
Rahul Shah

Head of Financials Equity Research

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Rohit Kumar
Rohit Kumar

Global Financials/Thematics

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Tellimer Research
12 October 2022
Published byTellimer Research

With the annual IMF/ World Bank meeting highlighting that global macro risk remains skewed to the downside, we assess how 24 fintech products stack up across five top-down factors, namely:

  • Wholesale funding dependence: Fintechs without access to customer deposits and with heavy funding needs (eg to support lending activity) will find themselves vulnerable to more expensive wholesale funding.

  • Capital funding dependence: Capital-intensive business models may find that such capital is more expensive to obtain and in much shorter supply. In turn, this may curtail their growth ambitions.

  • Pricing flexibility: Fintechs that can pass on higher funding/operational costs to their customers will be less vulnerable than their peers. Those that are locked into fixed-price relationships may see significant margin pressure.

  • Liquidity/leverage needs: Fintechs that need access to good levels of liquidity and leverage, or whose customers depend on the same, may find the environment much more challenging than their experience of the past few years.

  • Squeezed consumer finances: Consumers that are paying more for essentials like food and fuel will have less appetite for more discretionary financial services, including those that need a high level of risk appetite.

Ranking each product on a relative scale allows us to determine where the vulnerabilities within the fintech sector are most likely to be concentrated, and which areas could prove to be relatively unscathed. Of course, geography and company-specifics will also play a big role, but we think this can be a useful framework from which to perform more detailed work.

From this top-down perspective, our work suggests the most vulnerable product areas include POS financing (such as buy now pay later – BNPL), consumer/ SME financing and cryptocurrencies. In contrast, insurance aggregation/comparison services, digital payments and digital banking could prove more resilient.

Fintech scorecard: product sensitivities to macro headwinds