Will an economic recession affect the financial industry?

  • Ieva Janarauskaite, Communications Specialist at Mistertango

  • 13.09.2022 12:15 pm
  • #fintech

Financial services, like many other aspects of the global economy, have been profoundly influenced by the pandemic and the war happening in Ukraine. Since then, FinTechs had to learn how to lead the financial services sector in a period of severe challenges. FinTech has been a key booster of digital payments as consumers have quickly moved towards contactless payments and online shopping. Now we are facing the times when the recession and other aspects like the pandemic started affecting FinTechs. The main question is how can the impact be reduced.

What is a recession?

A recession is when the economy's performance drops for an extended period of several months, marked by GDP (Gross Domestic Product) contraction, increased unemployment rates, and lower consumer spending. It is characterized by a fall in stock prices, currency depreciation, economic shrinking, inflation, a decline in production, corporate bankruptcies, rising unemployment, a fall in personal income, etc. During a recession, people may experience consequential impacts on their daily lives.

Economist reacting to a recession

Many economists are expecting economic growth to slow in 2023, but they can not agree on whether it will enter an official recession or not. Some analysts estimate economic growth in 2023 will be slightly positive, at 0.1%, while others predict a growth rate of -0.4%.

Economy analysts say that we may be entering a rough period from a global economic growth standpoint though the FinTech industry should not be too worried because great companies will find a way to raise extra capital if needed.

Economy specialists are now considering how different sectors will perform in a recession, including FinTech. The economy is starting to go into recession thus it makes predicting the sector much more challenging.

The importance of FinTechs for the economy

In today's world, the creative solutions offered by FinTech companies are crucial to the financial services sector. Depending on market trends and consumer behavior, technological advances provide data-driven solutions to a rising tech-savvy audience. Moreover, this revolution is driving the development of the industry by expanding services across all sectors and promoting financial inclusion.

Also, over the last few years, technological innovations have enhanced rapidly. By meeting the needs of a younger demographic, the Fintech sector provides more financial opportunities to a wide range of industries, thus stimulating economic development.

In addition, Fintech can help all businesses by improving payment systems and customer relationship management. As a result, they can help to create more practical economic opportunities, and increase financial activity, therefore encouraging economic growth.

Increased dependence on technology has urged consumers to go towards FinTech benefits to meet their financial needs. The world is beginning to move from the pandemic, but the economic recession is coming and it might be riskier than the pandemic itself for the sector. Nevertheless, FinTechs are expected to continue shaping the financial landscape into the future. Every business can use FinTechs for their services and improve or automate their work and procedures. And by doing so, they are growing their businesses and economy every day.

In these challenging times, it is necessary to stay on top of your funds and choose safe banking services for your business. The drop in investment could be a good thing for the industry, at least in the long run. Analysts believe only companies that truly have something good to sell will survive the squeeze, leaving investors to recalibrate who they back. 

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