Fintech threat to big banks eased in 2022 as prices rose – report

Feb 15 (Reuters) – The competitive threat from financial technology companies to big banks eased over the past year as rising interest rates constrained funding, a new report from Moody’s Investor Service found.

A slowdown in venture capital funding in 2022 particularly hurt fintech firms that rely on external capital to finance their operations and acquire customers, Moody’s analysts wrote in the report on Wednesday.

The report cited figures from CB Insights that showed global fintech funding fell 46% from 2021 to 2022.

Traditional banks that have long benefited from established brands and customer relationships have gained access to stable deposit funding over the past year, giving them an edge over many fintech companies, Moody’s said.

Banks have long recognized that technology can disrupt business models and allow tech conglomerates to enter banking, Moody’s said. “They have aggressively hedged against such risks, either through increasing their spending on technology or through partnerships.”

Fintech companies often face more regulatory hurdles than banks and may have faced new requirements in certain jurisdictions in recent years, according to Moody’s. In Australia, for example, in 2021 regulators updated the country’s licensing framework for new depository institutions and are considering how to strengthen oversight of consumer credit.

But while the current macroeconomic environment may pose challenges for fintech companies, the sector still has the potential to increase financial inclusion and reduce costs for consumers, the report found.

“As has happened in previous market cycles, it is likely that a large number of nascent fintechs with weaker business models will disappear, and a handful will survive and prove truly disruptive over time,” Moody’s said.

Reporting by Hannah Lang in Washington; Editing by Lananh Nguyen and Josie Kao

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