Fintech

Fintech needs to grow, and fast, to survive

Published

7 months ago

20 June, 2024

Fintech needs to grow, and fast, to survive

The financing ecosystem for fintech startups has changed significantly over the past 24 months, creating entirely new rules for companies chasing investor capital. At-all-costs expansion plans will no longer win over investors, so fintech founders must show a path to smart, sustainable, and ultimately profitable growth.

Before 2022, fintech startups they were exploding. The pandemic powered visions of agile and mobile financial services. Low interest rates have caused investors to seek returns by investing large amounts of capital in fintechs, focusing primarily on rapid growth.

Startups of all types have been a huge beneficiary, with 2021 breaking records for startup funding and 2022 setting the all-time record for second place.

But after the surge in inflation, interest rates also increased. And as the banking system briefly faltered with the collapse of Silicon Valley Bank and First Republic Bank, venture capital firms suddenly closed their checkbooks. Startup funding has plummeted by more than 50%. as investors grew more cautious. Many companies have simply been left for dead by their investors.

This conservatism in turn closed the mergers and acquisitions market, dramatically shifting the conveyor belt of seed capital as paths to successful exits diminished. Middle-market fintech companies in particular found themselves suddenly stuck, with no obvious place to turn for help.

Even though 2024 has seen an increase in M&A activity and companies like Reddit demonstrate that a successful IPO is indeed possible in a high interest rate environment, it is unlikely that startups will see a return to the pre-boom days. pandemic. Investors are no longer in the same situation they once were. Regulators, previously behind on fintech regulations, are now catching up.

Reviving fintech growth will depend on the ability of founders and leadership to comply with the new rules. The good news for fintechs is that they do not operate in a completely hostile environment. This market cooling hasn’t affected investors anywhere near the size of the losses suffered during the dot-com crash, for example. Fintech remains a high-growth, high-potential market segment that investors still find attractive, under the right circumstances.

What has changed, however, are their expectations. Once upon a time, the prevailing view was that growth was the most important criterion sought by venture capital firms. Despite in many cases having significant operating losses (and in some cases no visible or very long paths to future profits), these companies may previously move forward, with the hope that scale will drive the acquisition, regardless of profitability.

But now companies need to grow smart rather than fast. Stories of efficient and strategic growth, with strong unit economics and good customer acquisition costs are now fashionable. Venture capital firms want to see this path to sustainable cash flow and profitability.

For startup leadership, this requires a greater degree of focus. All the bad opportunities won’t be worth pursuing if they take the company off its profitability trajectory. Proving the concept on a smaller scale will improve venture capitalists’ confidence in the larger company.

As the market warms up a bit, venture capital firms are looking more favorably on experience. Founders who have great ideas but no track record will find little love from investors. But management teams with impressive and relevant resumes will find a warmer welcome. Improving the level of management can be expensive for a company, but in some cases it is essential to attract the next level of financiers.

Interest rates are still high. Borrowing is still expensive. Investors want to know that the right hires are being made and that the right leaders are at the helm. Founders who stay in place need to ensure they have a good board of directors to support them, with people who can give frank advice.

As further evidence of fintech’s maturation, regulators and lawmakers are starting to wake up to concerns around data privacy and security, especially in the world of finance. Savvy venture capitalists look around corners and have a good understanding of what’s coming.

The fintechs that succeed in raising funds in the future are those that can demonstrate that they are well prepared for that regulatory future. They can demonstrate that they have a data privacy architecture in place and that their handling of consumer data is secure.

Finally, while AI is a priority for everyone working in the tech industry today, companies looking at funding need to understand exactly what role AI plays in their strategy, both as an enabler and a competitive threat. Companies that can demonstrate that they are effectively using AI to automate processes, cut costs and optimize services have a better chance of attracting investment, assuming they don’t get sucked into the core business jaws of a company that is building a large linguistic artificial intelligence model. .

The landscape for startup financing has improved, but it will still be difficult for companies to open the purse strings to investors. Valuations will remain low, making equity financing difficult. Companies still must be prepared to make sacrifices for investor money, whether it be headcount, ownership percentage, or degrees of founder control.

Fintech companies will need to show greater focus and discipline in the face of the sector’s first major macroeconomic headwinds. Sustainable growth will be the key to achieving success.

James Lichau is an insurance partner at BPM.

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

6 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

6 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

6 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

6 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.”