For fintech, it is the best of times – and the worst of times

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If you are in fintech, you will be experiencing the roller coaster ride of your life. There is so much going on in the sector that keeping up is like juggling spaghetti.

The good news is that there is huge investment in fintech, to the point of looking to some like the heady days of the dot com boom. The story went that all you had to do was write the name of a cool-sounding website address on an envelope, throw it into Silicon Valley and wait for the money to come back. Then came the boom, then came the bust.

In the second quarter of this year, one in every five dollars of investment went into fintech, and the creation of Unicorns was up 500%. In the words of one research house, it was ‘bonkers.’

According to CBInsights, ‘across 657 deals, global VC-backed fintech companies raised a record $30.8B, shattering last quarter’s funding record by 30%.’

The level of innovation is surging too. From new payment techniques aimed at Gen Z, such as Buy Now, Pay Later, to the ever-increasing interest in how the future of cryptocurrencies will pan out, there is no shortage of fintech companies jostling for position in an ever increasingly competitive market. JP Morgan has just stepped up to give cryptocurrency access to customers beyond the very wealthy.

Yet, inevitably, not all the fintech news is positive, and, like many other sectors, security is becoming more and more of an issue.

As you would expect, cyberattacks have soared during the pandemic as online payments increased by 22%, to $2 billion a day.

Payment scams hit three-quarters of fintech companies, and ransomware attacks are rampant. Johan Gerber of Mastercard revealed that there were 2,400 attacks, and an eye-watering $350 million was handed over to criminal gangs to get their data back. In many cases, the attacks used smaller businesses since they tend to be the weakest link when it comes to security. One financial institution has 3,000 internet-facing systems connected to 7,000 partners. That is a lot of systems to protect.

It is also not just about the actual attacks on fintech companies. Trust is fundamental for a business that manages money for people and businesses. Lose that trust, and not only do you lose the customers’ trust, but the whole edifice also begins to crumble, investors get nervous, and ecosystems collapse.

We have to hope that this, on balance, is the best of times for fintech, yet the ingredients are crunching into place to give rise to the very real thought that it could be about to become the worst of times. Again.

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