Rising interest rates are favorable to banks. But do they necessarily mean trouble for FinTech startups?
Following Fed’s recent meeting, it was announced on Wednesday that Fed would not be raising interest rates at the moment. It is common knowledge that rising interest rates will improve banks’ lending profitability. But the past few months which saw the interest rates consistently rise did not particularly bode that bad for startups. However, it is important to note that most of the funding for FinTech for MEAPT came from Halan’s MEGA round ($100M+) or from big rounds like Tabby’s $58M Series C. The same is true for FinTech globally. Stripe’s multi-billion dollar deal accounted for the majority of the funding. The world of FinTech is poised for continued growth, even in the face of macroeconomic challenges such as inflation, interest rate fluctuations, and bank collapses, and there are a number of factors that the industry has going for itself.
While geographies across the Middle East and Africa experienced a decline in funding and deals, there were a number of notable rounds closed. Deals in the continent remained way ahead of the superseding industries with FinTech leading tailing E-commerce by 29 deals. South Africa’s TymeBank and Kenya’s M-Kopa raised over $100M collectively. Traction in the industry in the African region continues to be driven by increased access to technology and a large population lacking access to financial products. For MENA, investors exhibited caution in the current market environment, leading to a decrease in late-stage deals and larger funding rounds. Early-stage saw its share increase as investors favored smaller, less risky rounds. While M&A activity has been on par with last year’s numbers, valuations declined. It is likely that FinTech startups, cautious about lower valuations and economic factors, delayed their exits. The top M&A deals were predominantly based in the UAE and Nigeria with the former leading in MEAPT exit share.
*Reach out to our Sales team for access to the complete data set.
Nevertheless, despite fluctuations, there is a promise for FinTech startups in the upcoming trends and the Fed’s hints of raising interest again. Compared to traditional banks which can tighten their lending criteria or raise borrowing costs for customers at a time like this, it creates an opportunity for FinTech startups to offer alternative lending options with more competitive rates and more flexible terms. Open banking initiatives enable customers to securely share their financial data with third-party providers. With interest rates rising, FinTechs can offer personalized financial advice, automated budgeting tools, and customized savings and investment solutions, leveraging data-driven insights obtained through open banking frameworks.
Moreover, with the shift toward Artificial Intelligence, it has the potential to revolutionize various aspects of the industry, including banking, payments, and investments. FinTech companies can leverage AI and ML to automate processes, reduce costs, and gain more accurate insights into customer behavior. Despite the challenges posed by the macroeconomic landscape, the FinTech industry continues to offer opportunities for growth. The sizable funding rounds, regional growth in certain markets, increased caution in late-stage deals, and the evolving M&A landscape all shape the FinTech sector. While banking-focused fintechs face challenges, other sectors maintain their elevated positions. The future of FinTech potentially remains promising, driven by digital adoption, financial inclusion initiatives, and collaborations between incumbents and FinTech companies.
Get full insight into this startup scene. Access real-time data on startups in MEAPT