The fintech industry has grown dramatically in recent years, providing businesses and consumers with modern, accessible, and affordable financial services they’ve long been seeking. Investment in the sector is booming too, with analysis from KPMG showing that UK fintech investment reached $37.3bn in 2021 – up sevenfold from 2020.
However, potentially tempering this explosive growth is the current economic environment. We’re witnessing rising interest rates, soaring inflation, industry-wide layoffs, and dwindling consumer confidence. It’s causing many to raise the question: will this macroeconomic environment stunt the long-term growth of the fintech industry? It doesn’t have to. For fintech organisations looking to drive long-term growth and differentiation despite the current economic downturn, they must turn their attention to their key revenue driver: the digital product.
The customer retention battle
In periods of economic decline, organisations must focus on retaining existing customers, as acquiring new ones becomes more difficult and prohibitively expensive. At its core, retention is about creating habits. You need to understand how many users keep returning to your product—and why. Historically, fintech apps and tools are known for having high customer acquisition costs and low loyalty rates. While the general app market has a retention rate of 35%, for fintech apps this falls to 16%. Finding new ways to increase customer loyalty remains a key challenge for the industry, and not just in turbulent economies.
Today’s users are inundated with apps and, understandably, this can mean fickle attention spans. In fact, the average app loses 80% of its users within the first three days. To prevent customer churn, organisations need to show users value immediately and during each interaction. But here’s the problem. Still today, it is common for fintech organisations—and companies across all industries—to ship products out into the market and have no idea what their customers are leveraging.
At most companies, the entire customer experience is a black box. This has created incredibly frustrating products, where instead of technology adapting to us, we have to adapt to technology. And with the exceptionally low retention rate for fintech apps, this is a huge issue. Financial institutions have invested millions of dollars in digital transformation, and are now looking to understand the return on that investment. By investing in the product itself and leveraging data to better understand the customer experience, fintech companies can build long-term durability and differentiation in the market. Today’s fintech market is a battle of customer retention, and those organisations who find ways to become essential to their customers will win out.
Experimentation-driven growth
During an economic crisis, it might be tempting to slow down experimentation, if not halt it altogether. However, instead, fintech organisations should double down in this area. Experimentation creates crucial new opportunities for growth, and also helps teams understand what initiatives aren’t performing well. This knowledge empowers teams to end those projects faster and shift resources to more successful ones.
In the case of fintech startup ClearScore, the company was looking to leverage experimentation to increase conversion to its new paid-for product, ClearScore Protect. With access to critical customer behaviour data, ClearScore was able to better understand how its customers were interacting with its products. Leveraging these insights, the company increased testing and experimentation by more than 400%. By experimenting with funnel analysis, ClearScore could see how users were navigating certain pathways, and identify problem areas where users tend to drop off. The team also found that users within certain financial and demographic groups were more likely to subscribe and that users who completed certain actions in the free product were more likely to upsell. With these insights, ClearScore was able to position the product to specific users and refine its messaging to encourage conversion. Within 12 months of launching ClearScore Protect, the team doubled its subscription rate.
Simplifying and scaling in fintech
We cannot predict with certainty what the macroeconomic landscape will look like over the coming months and years. However, what is certain is that all fintech organisations must learn to do more with less. Fintech leaders must focus on simplicity: the problem they are solving for customers and what their solution empowers customers to accomplish. There is no room for over-complication. All too often, business leaders don’t want to accept that simple ideas are the right path to take, and instead try to make solutions more complex. However, amid an economic downturn, keeping things to the essentials is best. Simplicity always scales better than complexity.
Today’s market presents many challenges for the fintech industry. But there are many ways the sector can set itself up for not only retention but growth. To create long-term differentiation and meet evolving customer needs, fintech companies must continue to invest in their product, and not just in times of scarcity. In the fintech industry, there will always be larger macroeconomic trends at play, whether that is changes in consumer behaviour, new regulations, or climbing interest rates and inflation. These frequent changes require companies to set flexible strategies, take risks, and learn from their experiments. By listening to your customers’ needs and focusing on the problem your organisation solves, fintech startups will be able to grow with their customers, even in an economic downturn.
About the author: Daniel Bailey is the VP of EMEA at Amplitude. The former VP of Zendesk, he now leads teams helping businesses in all markets, to build successful product and customer experiences through Amplitude’s cross-platform, real-time data solution.
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