Fintech

How close is the payments technology sector to a breakthrough? | PaymentsSource

Published

10 months ago

23 June, 2024

FinCrypt Staff

How close is the payments technology sector to a breakthrough? | PaymentsSource

Wise has seen strong growth, although it expects slightly lower growth next year.

Chris Ratcliffe/Bloomberg

The last two years in payments technology and fintech industries were marked by declining ratings AND changes in strategy as companies look for signs of recovery.

While investment firm F Prime Capital and consultant Top consulting partner they say the ratings have turned the corner, Payments experts believe the market is still weak compared to the brisk pace seen in the late 2010s and early 2020s.

There have been unsustainable levels of growth in the fintech ecosystem during the pandemic, said Spencer Hurst, principal at Lovell Minnick, a private equity firm that invests in fintech and payment technology companies, adding that companies that received valuations at outside of those unsustainable growth levels have struggled to grow in valuation expectations over the past two years.

“What we’re seeing now is a 12-month period where the federal funds rate has been 5% or more, providing a somewhat consistent market environment in which fintech companies can operate and investors can evaluate those businesses fintech,” Hurst said. “Companies that have operated successfully in the current environment are starting to enter the market and command premium multiples because buyers have confidence in the ability of such companies to perform well in all types of environments.”

F-Prime, which produces an index of fintech valuations, estimated that the global fintech market capitalization peaked at $1.3 trillion towards the end of 2021, before falling to $389 billion at the end of 2021. 2022. 2023 saw a rebound to $573 billion, and F-Prime says the fintech index has outperformed the S&P 500 by 114% so far in 2024.

But that doesn’t necessarily mean payments or fintech markets are booming. Revenue has seen only a modest recovery and investors are looking for “structurally attractive gross margins relative to revenue growth,” F-Prime said.

“I don’t see a trend toward higher valuations in the payments or fintech space yet,” said Aaron McPherson, director of AFM Consulting.

Data from S&P Global Market Intelligence shows that fintechs raising early-stage and growth funding are receiving smaller checks, with round sizes decreasing by 17% and 26%, respectively, between Q1 2024 and Q1 2023. , said Jordan McKee, director of fintech research and consulting. practices at 451 Research and S&P Global Market Intelligence.

In the first quarter of 2024, there were 13 fintech funding rounds that exceeded $100 million. According to McKee, this value is approximately fivefold compared to the first quarter of 2021.

“The period between mid-2020 and mid-2022 saw the fintech market swell,” McKee said. “Since then we have seen a kind of cleansing fire sweep the space, with ratings coming back down to earth.”

A wise story

British payments company Wise recently reported strong earnings and forecast growth next year, but still saw its share price decline.

For the full year between March 2023 and March 2024, Wise reported volume of approximately $39 billion, up 15% from approximately $34 billion between March 2022 and 2023; its revenue in the same period was about $350 million, up 24% from about $282 million, while revenue was about $1.5 billion, up from about $1.1 billion dollars, an increase of 31%.

Despite this growth, Wise’s actions it fell more than 10% in the hours after the earnings report was released, although it has since stabilized. The decline was mainly due to the fact that it forecast annual income growth of between 15% and 20% for the year between April 2024 and March 31, 2025, which would be lower than the 31% growth reported in the previous year . Wise also cut prices in early 2024 as part of its strategy to support international transfers at discount rates, another move that drew criticism from analysts. Jefferies said Wise’s reduced projections were “disappointing given the price reduction.”

In an email, Wise’s public relations office said that “our strategy and priorities have always been focused on the long-term opportunities we see ahead of us. What we are building is to support the real needs of people and businesses, as seen by another year of active customer growth and strong financial results.”

Wise, which employs about 5,800 people, is still hiring, albeit at a slower pace than in 2023, according to the company.

“Not all markets are created equal,” Harsh Sinha, Wise’s chief technology officer, said in an interview following Wise’s recent earnings report. “Many companies that have come out of the pandemic have been funded and as the market has changed, many have taken a hit.”

Wise competes with companies like Ripple and Revolut to support international payments with faster and cheaper processing than many that use correspondent banks. Smart teams with local partners, such as fintechs and banks, to support a network for international payments. The company recently collaborated with Bluevinea small business banking technology company, to make it easier for businesses to make or accept payments in their own currency, even if they are located in different countries.

That market is growing rapidly. According to the report, the volume of international transactions, including business-to-business and consumer-to-business payments, amounted to approximately $150 trillion in 2023. Airwallex and Visual Capitalistwhich predicts the market will reach $250 trillion by 2027.

The underlying technology and network that banks have built or purchased to improve cross-border payments is “not great,” Sinha said, noting that Wise controls about 1% of the global share of small business payments. “The market is very big and we are still a small part of it,” Sinha said.

Wise integrated last year with Australia’s national payment system, allowing transfers to and from Australia, with processing times of less than 20 seconds. It has also partnered with Swift creating potential access to Wise for more than 11,000 institutions, mostly large banks, Sinha said. “This becomes a viable option for us to move the payment flows of these banks.” Wise’s other recent moves include obtaining a payments license in Japan, adding Standard Chartered as a partner in Hong Kong and expanding its card-issuing partnership with Tiger Brokers in Singapore. “We will have conversations with banks around the world,” Sinha said. “It’s a pretty global business now.”

High rates and downsizing

The economic picture for payment technology companies is still mixed. To blockfor example, announced better-than-expected results in its latest quarter, as CEO Jack Dorsey said the company achieved key objectives in the company’s turnaround plan, which he launched when he returned to the helm of Block after several years away from office.

Buy now/pay later fintech To assert it also delivered higher sales volume and narrowed losses during its latest quarterly earnings report. AND PayPal also reported strong earnings. Both Affirm and PayPal are among the payments companies that are betting heavily on new forms of artificial intelligence to spur future economic performance. One exception to the weakness is artificial intelligence, which is a bright spot in terms of VC money and valuations, McPherson said, adding that AI could divert investments from other uses.

“So we’re seeing rising valuations for payments and fintech companies that leverage AI, perhaps at the expense of other companies,” McPherson said. “I would like to see more of an upward trend in profits and valuations before I’m ready to say we’ve reached the bottom.”

There has also been a steady stream of layoffs technology companies, financial institutions and fintechs. These layoffs should lead to higher profits and higher valuations in the future, McPherson said.

The Federal Reserve’s recent announcement that there will likely only be an interest rate cut this year means financing terms for payment technology companies will remain challenging.

“This will depress fundraising, as there are attractive rates elsewhere in the market,” McPherson said. “One of the drivers of the high valuations in 2020 and 2021 was the lack of attractive investment alternatives.”

While the payments technology market was on the upswing, there were years of easy money, under the assumption that fintechs and payments companies could enjoy solid above-market growth indefinitely and that the country’s rich transaction economy moment was sustainable for an indefinite time. According to Eric Grover, an executive at Intrepid Ventures, this and the idea that so-called “disruptors” would reap huge profits created a huge valuation bubble.

“The fintech herd will be brought down,” Grover said. “Weaker and undercapitalized fintech companies will fail or be acquired. Some, however, will emerge stronger and therefore begin to see rising valuation multiples.”

The key market opportunities for fintech companies remain strong, Lovell Minnick’s Hurst said. “The market size is enormous, there is strong customer demand for technology-based solutions and there is ample opportunity to sell multiple products to the same end customer.”

According to Hurst, when a market’s fundamentals are as strong as they are in fintech, interest is likely to persist. “The level of attractiveness will depend on the fintech subsector and each company’s recent growth trends.”

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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.”