In the wake of the UK Government’s Autumn Budget, it is now confirmed that the UK is now well on its way towards a period of extended recession. The fintech sector is braced for a period of change and behavioural adjustment, as investors and founders furrow their brows over what to expect from what is likely to be an economically turgid 2023.

For those of us working in fintech, it is easy to get caught up in the malaise currently surrounding the industry. Despite the gloomy economic forecast hanging over the country, there is still cause for optimism. I believe now is exactly the time to take stock and re-evaluate what exactly has changed, and what opportunities are still on the horizon.

To try and understand the present moment, let us take a look at how we got here. Firstly, there was no way the era of cheap credit and quantitative easing was ever sustainable in the long term. We can moralise our past missteps until the cows come home, but we can agree that perhaps it is time to admit that our brazen culture of low-interest loans had to come to an end.

None of us expected the latest outgoing cabinet to be such a timely catalyst, but it is time to recognise fully that this trend must now be hung out to dry. The sugar rush of low-interest rates, low inflation, and technology adoption (further inflated by the pandemic) created an artificial valuation bubble. This was particularly true in consumer fintech, which recently experienced some dramatic valuation drops as certain fintech models ran out of steam.

Onto the subject of valuations, a much-maligned topic in recent months across all tech verticals. The valuation peak in global fintech was another completely unsustainable trend, one that has now come crashing down to earth with unfortunate consequences for many employees who found themselves on the wrong side of widespread cuts. As we enter this new reality, it is clear that a market adjustment, however painful, is very much needed. Founders, investors and regulators across the fintech and financial sector can and must conduct a rethink when it comes to these assessments. The same is true for the skyrocketing of public valuations, subsequently frothing up the massive figures we saw for companies like Klarna and Revolut.

It is very difficult, if not impossible, to say how long this downturn will last. Yet it would be wise not to underestimate the time it may take for the global economy to return to what might tentatively be felt as ‘normal’. On consultation with the history books, however, one may discover precedents which inspire a relative degree of optimism about the prospects of an eventual recovery for both the UK and global economies.

Correction events and recessions pose huge and obvious risks in the short term to many, creating the necessary rationale for governments and regulators to take sweeping (if not painful) calming measures. History does also point us in the direction of the opportunities presented by downturns, with many of the world’s most successful companies being founded during recessions. From Disney to General Motors and Microsoft, the 20th century saw its fair share of phoenixes emerging from various ash heaps throughout what was a tumultuous economic period. More recently, many of the world’s best-known startups including WhatsApp, Slack, and Airbnb were founded in the wake of the Global Financial Crisis of 2007/8. The same applied to many now majorly successful fintechs too, with the recession of 2008 providing a vacuum from which emerged the likes of TransferWise and Square.

For new and soon-to-be fintech founders in the UK right now, there are certainly reasons to be feeling optimistic about the future. The early-stage market will remain insulated for quite some time to come, and I would go as far as to say that there is perhaps a no better time to set up a startup.

Market anxiety aside, founders can be reassured by the simple fact that early-stage funds have plenty of dry powder to play with, and despite funding decreasing year-on-year, generally money is still being raised in large quantities. A more cautious and considered VC culture for 2023 means that funds will spend more time researching the startups they choose to back. This in turn means that now more than ever, new founders must be highly conscious of how to demonstrate their company’s value in its respective field to attract the attention of early-stage funds.

As mentioned previously, valuations have been corrected in line with much more realistic assessments of what companies can offer, including at the early stage. The confidence boom that huge valuations created in fintechs was good for morale, but a more even keel in valuations means there is less long-term pressure on startups to live up to the unrealistic expectations created by ultra-high market price tags. Early-stage companies may also be the timely beneficiaries of the maxim that ‘one man’s loss is another’s gain’. Major layoffs in big tech and a general labour shortage in tech have meant that there is plenty of talent that perhaps has never been more accessible to new companies looking to grow their teams with experienced professionals.

As the UK financial ecosystem reacts to the measures put in place by the chancellor’s Autumn Budget, British fintech will also be looking to switch its focus to reflect the current state of play in the economy.

There is likely to be an increase in the amount of affordability-focused fintechs, offering rent-to-buy models, for example as a way to leverage tech to combat the recession. Accessibility-focused companies that help raise credit scores for those looking to use BNPL or other short-term loans will also be a major feature of the industry soon. The enormous implications of climate change for businesses are also bound to make their mark in fintech soon, and one can expect to see the appearance of companies that offer environmental visibility to customers on purchasing and source awareness.

UK fintech is adjusting at present, pivoting towards a more issue-focused and sustainable approach to both scaling and offering, and in general, there is still a lot of reason to suggest that the UK can remain a fintech hub in Europe for the time being. The government and the opposition will continue to quarrel over the best way to prioritise growth. At least for now, many of the favourable conditions for UK fintech remain in place.