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Investments in fintech: promising areas and risks – Sergey Kondratenko


Every day more and more companies use fintech tools. Industry expert Sergey Kondratenko explained that companies do this to improve the efficiency of their activities. A recent study by Thomson Reuters Regulatory Intelligence (TRRI) showed that financial technologies (fintech) are now used everywhere. What is fintech and what is their role in the modern financial activity of an enterprise?

From a practical standpoint, fintech represents a field where innovative technologies are applied to provide financial services and create new products, Sergey Kondratenko elaborates. The expert adds that these can be banking services, insurance, investment, stock sales. This also includes online payments, for instance, from an electronic wallet.

Sergey Kondratenko is a recognized specialist in a wide range of e-commerce services with experience for many years. Now, Sergey is the owner and leader of a group of companies engaged not only in different segments of e-commerce, but also successfully operating in different jurisdictions, represented on all continents of the world. The main goal is to drive new traffic, create and deliver an online experience that will endear users to the brand, and turn visitors into customers while maximizing overall profitability of the online business.

How are fintech and regtech being used today? – Sergey Kondratenko explains

More recently, global financial institutions have survey about planning and using fintech and reg technologies.

– A quarter of its participants said they use fintech for information security, as well as payments (22%), customer relationship management (21%) and credit risk analysis (16%). At the same time, in the field of reg technologies, cyber resilience was named by 20% of respondents, and compliance monitoring (16%), combating financial crimes/money laundering/sanctions (14%) and registration (14%) – Sergey Kondratenko says.

According to the specialist, global investment in fintech in the first half of 2023 declined amid economic instability. But despite the uncertainty and the decrease in funding activity, the fintech sector continues to prove its resilience, attracting significant investment, Sergey Kondratenko notes.

According to data from British industry organization Innovate Finance, in the first half of this year, $27.3 billion was invested in the industry as a result of 1,714 investment transactions. However, if we compare these figures with those in the second half of 2022, we get 2.5 thousand transactions for more than $31.7 billion. Such a 14% decrease suggests that investment activity has somewhat slowed down this year. Analysts attribute this situation to inflation and global conflicts.

– As you can see, investors continue to act cautiously. Therefore, it will depend on socio-economic activity in the next six months in which direction these indicators will change, – Sergey Kondratenko believes.

Turning to the UK market, Innovate Finance acknowledges that factors such as high inflation and tight cash flows have weighed on investment activity.

Despite economic uncertainty, fintech companies, especially those that have long established themselves in the market, continue to make progress. This is primarily due to the use of new technologies and the capitalization of market opportunities.

– I want to draw attention to the fact that the decrease in investment in fintech both globally and in the UK is a quite predictable result of the current economic situation, emphasizes Sergey Kondratenko. – We see that investors are very cautious in their moods and continue to actively monitor the stock markets in search of profitable offers for deposits.

Risk factors for fintech from Sergey Kondratenko: interaction with venture funds and angel investors

In pursuit of speed and quality of service, as well as in order to optimize the costs of business processes, some fintech initiatives often do not take potential risks seriously enough.

The impact on the cost of lending in traditional banks and fintech projects is determined by three key factors:

  • fundraising costs,
  • predicted probability of non-repayment of loans,
  • the cost of organizing business processes.

However, banks are subject to more stringent risk control by financial regulators. At the same time, not all fintech initiatives can afford the establishment of an economic security service.

However, the activities of banks in relation to risks are regulated more strictly by watchdogs. At the same time, not every fintech project includes an economic security service in its activities. Instead, they try to protect themselves by maximally automating processes and entrusting control duties to credit analysts.

– As for the functions of a credit analyst, an underwriter (a specialist involved in risk assessment) and a risk specialist, fintech projects also strive to simplify processes as much as possible. There are cases when the role of underwriters or risk analysts is limited, in particular because of the high cost of their services. In such cases, the risk block may be reduced to the application of a simple scoring system, which is submitted to a single credit analyst for review. The essence of this approach is to monitor risks and control them using automated methods,– Sergey Kondratenko notes.

Business angels and venture capitalists: who are they and how are they associated with risks in fintech? – Sergey Kondratenko

Speaking about the emergence of risks in fintech, one cannot fail to mention the contribution to the financial activities of business angels and venture capitalists. If we appeal in simple terminology, then both of these concepts are associated with one direction – investment, but at the same time they invest in projects in different ways.

Sergey Kondratenko explains that business angels are financially wealthy individual investors or groups of investors who invest their personal funds in companies. While venture capitalists are specialists working in companies that manage venture funds and finance projects with funds raised from these funds.

In order to understand the role of these investors in the activities of companies using fintech, one should consider the advantages and disadvantages of their influence.

Advantages of cooperation with business angels and venture capitalists:

  1. High risk appetite. The difference from traditional financial institutions such as banks is that business angels and venture capitalists are generally willing to take on a greater level of risk when investing in startups.
  2. Reducing risks for the entrepreneur. In case of failure, investments are not returned back, which reduces financial risks for startup founders.
  3. Access to experience and knowledge. The experience and knowledge accumulated by business angels and venture capitalists over the years of activity can be used for the benefit of new startups. This can help entrepreneurs avoid mistakes and make more informed decisions.
  4. Incentive for rapid development. Venture capitalists provide significant investments, which is especially valuable for start-ups looking for intensive growth. These funds help companies expand their business faster and more efficiently.

In addition to the above advantages, Sergey Kondratenko points out the main drawback of cooperation with business angels, due to which startup founders can lose part of their own funds in their own project. In fact, business angels buy a part of the company and seek to control it, manage its development.

– An interesting aspect is that venture capitalists, by investing their money, expect to receive a certain number of shares in a startup. That is, in some cases, after a series of transactions, venture capitalists can acquire more than 50% stake in the company. In this case, in fact, the owner loses control over his enterprise, –notes Sergey Kondratenko.

Over time, the fintech sphere continues to expand, becoming ever larger. This is due to the significant development of technologies in this area, increased availability of services and lower costs, which further stimulate consumer demand.

Evidence for this is provided by specific numbers: The fintech market has grown from approximately $105.41 billion in 2021 to over $131.95 billion in 2022. According to expert forecasts, by 2026 the fintech sector can reach $324 billion and grow by an average of 25.18% per year.

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