Fintech

Fintech has hit bottom after plummeting valuations, executives and VCs say

Published

10 months ago

14 June, 2024

Fintech has hit bottom after plummeting valuations, executives and VCs say

Long gone are the days when venture capital flowed into fintech startups with bold ideas – and little to show for it in terms of business metrics and fundamentals.

Bloomberg | Getty Images

AMSTERDAM — The financial technology sector is embracing a new normal, with some industry executives and investors believing the sector has reached “bottom.”

Executives and investors at the Money20/20 event in Amsterdam last week told CNBC that valuations have corrected from the unsustainable highs of the sector’s heyday in 2020 and 2021.

Long gone are the days when venture capital flowed into startups with bold ideas and little to show for it in terms of business metrics and fundamentals.

Iana Dimitrova, CEO of embedded finance startup OpenPayd, told CNBC in an interview at the company’s booth that the market has “recalibrated.”

Embedded finance refers to the tendency of technology companies to sell financial services software to other companies, even if those companies do not offer financial products directly.

“Value is now being placed on companies that can demonstrate that there is a solid use case, a solid business model,” Dimitrova told CNBC.

“This is recognized by the market, because three, four years ago, that wasn’t necessarily the case anymore, with crazy ideas of domination and hundreds of millions of dollars in VC funding.”

Iana Dimitrova, CEO of OpenPayd, speaks on stage at the Web Summit in Lisbon, Portugal.

Orazio Villalobos | Getty Images

“I think the market makes more sense now,” he added.

Lighter steps, talks take place on the margins

Last week, in the exhibition space of the RAI conference venue, banks, payments companies and big technology companies showed off their products, hoping to reignite conversations with potential customers after a difficult few years for the sector.

Many attendees CNBC spoke to said the conference room was much lighter in terms of conference attendees and the shuffling of delegates crowding into the various booths and booths around RAI.

Many of the most productive conversations, say some attendees CNBC spoke to, actually happened on the sidelines of the event: in bars, restaurants and even at boat parties held around Amsterdam once the day on the show floor was over.

According to KPMG, global fintech funding reached an all-time high of $238.9 billion in 2021. Companies like Block, Affirm, Klarna and Revolut had reached incredibly high multi-billion dollar valuations.

But by 2022, investment levels dropped dramatically and fintechs globally raised just $164.1 billion. In 2023, funding fell further to $113.7 billion, a five-year low.

Have we hit rock bottom?

And this despite the massive growth of many companies.

The negative impact of higher interest rates means that, even for the most attractive and fastest-growing players, financing is difficult to obtain or is offered at lower prices than before.

Nium, Singapore’s payments unicorn, said in an announcement Wednesday that its valuation has fallen to $1.4 billion in a new $50 million funding round.

Prajit Nanu, CEO of Nium, told CNBC that investors have sometimes been too distracted by artificial intelligence to pay attention to the innovative products and growth stories happening in the world of fintech.

“Investors now have an AI mindset,” he told CNBC. “Like, whatever the cost. I want to go into artificial intelligence. They’re going to burn a lot of money.”

Nanu added that the trend mimics the “madness” fintech has seen in terms of frothy valuations in 2020 and 2021.

Today, according to him, we have reached the “bottom” regarding the values of the fintech market.

“I believe this is the low point of the fintech cycle,” Nanu said, adding that “this is the right time to get it done.”

Consolidation will be key moving forward, Nanu said, adding that Nium is eyeing several startups for acquisition opportunities.

OpenPayd’s Dimitrova said he is not currently considering turning to outside investors for fundraising.

But, he said, if OpenPayd were to look to accelerate its annual recurring revenue past the $100 million mark, venture capital investments would be considered more carefully.

Return of cryptocurrencies?

Cryptocurrencies have also made something of a comeback in terms of hype and interest at this year’s event.

Scattered throughout the RAI headquarters were the stands of some of the major players in the sector. Ripple, Fireblocks, Token8, and BVNK, a cryptocurrency-focused payments company, all had a large presence with noteworthy booths around.

CoinW, a cryptocurrency exchange backed by Italian soccer star Andrea Pirlo, ran the advert across a bridge connecting two of the conference’s main halls.

Fintech executives and investors CNBC spoke to at this year’s Money20/20 said they are finally seeing a real use case for cryptocurrencies after years of bulls touting them as the future of finance.

Despite AI’s enormous promise to change the way we manage our money, for example, “there is no new AI to move money,” according to James Black, partner at venture capital firm IVP – in other words , AI is not changing the infrastructure behind payments.

However, stablecoins, tokens that match the value of real-world assets like the US dollar, are changing the rules of the game.

“We’ve seen the wave of cryptocurrencies, and I think stablecoins are the next wave of cryptocurrencies that are going to get more mass adoption,” Black said.

“If you think about the most exciting payment channels, there’s real-time payments – I think that’s exciting too. And it fits with stablecoins.”

Charles McManus, CEO of ClearBank, speaks at the Innovate Finance Global Summit in April 2023.

Chris Ratcliffe | Bloomberg | Getty Images

ClearBank, the UK’s cloud-based clearing bank, is working on launching a stablecoin backed by the British pound and expects to receive a provisional blessing from the Bank of England soon.

Emma Hagen, ClearBank’s Chief Risk and Compliance Officer and incoming UK CEO, and Charles McManus, the company’s global CEO, told CNBC at its booth at Money20/20 that the stablecoin it is working on would be sufficiently supported by a corresponding number of reserves.

“It’s early days as we learn with our partners,” Hagen told CNBC. “It’s about doing it in a way that gives people that confidence and security that there will be a practical issuance.”

ClearBank is also working with other cryptocurrency companies to offer the ability to earn a high return on uninvested cash, McManus said.

He declined to reveal the identity of which company, or companies, ClearBank was in talks with.

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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.

Source

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

Today

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.”