Fintech

A new formula for winning in Fintech

Published

10 months ago

26 June, 2024

Global fintech revenues grew significantly in 2023; Valuations and financing remain depressed but have recently stabilized
Themes shaping the industry include integrated finance, connected commerce, open banking and the impact of generative AI on productivity

BOSTON, June 26, 2024 /PRNewswire/ — While fintech has been in rough waters in recent years, there is vast potential for future growth. As the industry matures, the rules of the game are changing, with a greater focus on unit economics and profitability rather than growth at all costs. From 2021 to 2023, global fintech revenues grew 14% (at a compound annual growth rate), while both funding and valuations plummeted. Major fintech players have achieved profitability and are expanding rapidly.

This is according to a new report released today by Boston Consulting Group (BCG) and QED investors. The report, Global Fintech 2024: Caution, Profits and Growthuses insights from interviews with over 60 global fintech CEOs and investors to outline the key forces shaping the industry and the trends that will drive innovation.

“Profitability and compliance are now the cornerstones of fintech success,” says Deepak Goyal, managing director and senior partner at BCG and co-author of the report. “They are essential to attracting ongoing investment, scaling operations and building lasting, valuable businesses.”

“With annual global profit of $3.2 trillion on a base of $14 trillion in total revenues, the financial services sector is huge and ripe for innovation,” says Nigel Morris, managing partner at QED Investors . “Fintechs are growing faster than incumbents, and while the $320 billion in fintech revenue represents less than 3% today, exponential advances in GenAI and continued growth in embedded finance mean we are still early in the fintech journey , where the separation of winners and losers is becoming evident.”

A new Fintech ecosystem is emerging

After 2021 highs, fintech revenue valuation multiples have fallen from 20x to 4x on average, and funding has fallen 70% and nearly 50% over the past year. However, the global fintech market has continued to grow revenues at a strong pace: 14% over the past two years across the board and 21% excluding cryptocurrencies and China-exposed fintechs (both at a compound annual growth rate) . Governments, especially in countries like Brazil and India, are reaping the benefits of investing in integrated digital public infrastructure, spurring dramatic growth in digital payments and innovation. Perhaps even more noteworthy is that the industry has begun the shift from a “growth at all costs” model to one focused on profitable growth, with margins improving by an average of 9 percentage points.

Four themes will shape the future of fintech

The report outlines four trends that will drive the industry in the coming years:

Integrated finance will constitute a $320 billion market by 2030. The small and medium-sized business (SME) segment will account for about half ($150 billion); the consumer segment, already bustling with activity and adoption in payments, insurance and lending, will be worth $120 billion in revenue by 2030; and the enterprise segment will reach $50 billion in revenue. Established fintechs will continue to reap the lion’s share of the short-term benefits, while larger, more established banks will increasingly increase their share over time.

Connected commerce is ready to take off. Connected commerce is emerging as a long-awaited killer app for banks, creating a new revenue stream, increasing customer loyalty and allowing banks to offer a marketing channel to SMEs and corporate customers. Using granular customer data, banks show hyper-personalized ads to their customers; merchants then pay the bank based on attributable sales or traffic. As key revenue streams continue to come under pressure and deposits risk becoming a commodity in a higher yield environment, connected trading suggests a future model for banks.

Open banking will have a modest impact on banking, but a larger impact on advertising. Open banking will continue to be relevant, but it is unlikely to change the basis of competition in consumer banking. In countries where open banking has had a decade or more to mature, no “killer” use cases have emerged on the new services front. Of course, this doesn’t mean that open banking will have no impact. But revenue pools in the connectivity layer will remain modest, with value going to end-use case providers leveraging open banking infrastructure. By contrast, in advertising, access to transaction-level data will enable more timely, targeted and personal offers.

Generative AI will now be a game changer for productivity, followed by product innovation. GenAI is already delivering tangible productivity gains in financial services. For GenAI in fintech, given that their “digital-first” cost structures are heavily skewed towards areas where the technology is delivering huge gains – coding, customer service and digital marketing – the impact will likely be even more pronounced in the near term . The use of GenAI in product innovation will lag behind its uses for productivity, but is expected to follow eventually.

To thrive in this new environment, players will need to focus on the following:

Caution. View risk and compliance as a competitive advantage
Profit. Aim to improve profitability by 25 percentage points
Growth. Establish the conditions for sustainable growth across the ecosystem
- For fintechs: starting the journey to IPO (or strategic sale) and beyond
- For Incumbents: Retail Banks Must Become Digital Engagement Platforms
- For governments: Support the creation of comprehensive and integrated digital public infrastructures

Download the publication here:
https://www.bcg.com/publications/2024/global-fintech-prudence-profits-and-growth

Media contacts:

Boston Consulting Group
Eric Gregoire
+1 617 850 3783
[email protected]

QED Investors
Ashley Marshall
+1 518 577-9984
[email protected]

QED Investor Information
QED Investors is a leading global venture capital firm headquartered in Alexandria, Virginia. Founded by Nigel Morris and Frank Rotman in 2007, QED Investors focuses on investing in disruptive financial services companies around the world. QED Investors is dedicated to building great companies and uses a unique, hands-on approach that leverages its partners’ decades of entrepreneurial and operational experience, helping companies achieve breakthrough growth. Notable investments include AvidXchange, Betterfly, Bitso, Caribou, ClearScore, Creditas, Credit Karma, Current, Flywire, Kavak, Klarna, Konfio, Loft, Mission Lane, Nubank, QuintoAndar, Remitly, SoFi, Wagestream, and Wayflyer.

About Boston Consulting Group
Boston Consulting Group partners with leaders in business and society to address their most important challenges and seize their greatest opportunities. BCG pioneered corporate strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach to benefit all stakeholders, enabling organizations to grow, build sustainable competitive advantage and generate positive social impact.

Our global, diverse teams bring deep industry and functional experience and a range of perspectives that challenge the status quo and spark change. BCG provides solutions through management consulting, cutting-edge technology and design, and business and digital initiatives. We work in a unique collaborative model across the company and at all levels of the client organization, fueled by the purpose of helping our clients thrive and enabling them to make the world a better place.

SOURCE Boston Consulting Group (BCG)

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

9 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

9 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

9 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

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Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

9 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

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To come
Aveni Assistance
Aveni Detection

Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”