No profit, no future？

Andy Bell stepped down as CEO of AJ Bell last year, but he remained at the company as a consultant。Bell founded AJ Bell in 1995 and built the company into a FTSE 250-index business with a market capitalisation of £1.4bn and annual revenues of almost £44m.。

Speaking about the growth in the number of fintech companies selling services directly to consumers, Bell said: "It's scary, some of these startups are out of track.。AJ Bell was profitable in the first month of its existence and has been profitable every month, but I think this seems outdated today。

Bell continued: "At the end of the day, businesses need to make money, and I've looked at some business models and it's incredible that they can still make money now.。"

UnprofitableFinancial Technology Companies' Risks to Retail Investors

When asked about the risks of retail investors trading through these new fintech platforms, Bell highlighted the potential counterparty risk and the role of regulators in protecting customers: "Some businesses will fall off a cliff in the near future if they don't raise another capital.。Whether a business can still exist after 12 to 24 months or even longer is predictable, and regulators do have a responsibility in this regard。"

Medium-term outlook for unprofitable fintech companies

On the medium-term outlook for unprofitable companies in the sector, he said: "In the next two years, as private equity capital dries up, these companies are still burning money, and I'm not sure what will happen at the end of the track.。

As we recently noted, fintech financing in Europe has fallen by more than 80% so far this year compared to the same period in 2022.。And according to San Francisco consulting firm FirstPageSage, valuations of fintech companies have fallen by more than 40% compared to 2021。

In times of zero or even negative interest rates and inflation, many fintech companies seem to confuse cheap debt or equity with positive cash flow and profits。It turned out to be a costly mistake, as interest rates and prices are now rising sharply。

In a tight labor market, the wages of coders, engineers and other key personnel are rising, while the service fees or commissions that businesses can charge are depressed and kept low due to fierce customer competition。

What's more, in the UK, the cost of acquiring a new customer can easily exceed that customer's lifetime value to a fintech start-up。

Economies of scale and critical mass are well-known business concepts, but increasingly difficult to achieve。As Andy Bell points out, if a fintech company fails to create economies of scale and critical mass during the financial services boom, its future is difficult to determine。