Fintech

Slowdown in fintech funding in Europe dampens mood at Amsterdam event

Published

8 months ago

5 June, 2024

Slowdown in fintech funding in Europe dampens mood at Amsterdam event

By Elizabeth Howcroft

AMSTERDAM (Reuters) – Europe’s fintech sector faces an uncertain future after funding crunches over the past two years scaled back pandemic-era ambitions and lofty valuations, but some are optimistic that rates lower interest rates will stimulate the recovery.

At the fintech conference in Amsterdam this week, the mood among delegates was mixed, although the speakers and organizers on stage were optimistic, particularly about the promise of artificial intelligence.

Damien Dugauquier, co-founder of iPiD, a Singapore-based fintech that offers prepayment validation services, said fundraising has been “considerably more difficult” in Europe than in the United States or Asia, which attributed to Europe’s weaker economic growth.

“I hope things change for Europe,” he told Reuters on the sidelines of the Money20/20 conference, where many of the exhibitors focused on cryptocurrencies or artificial intelligence.

Artificial intelligence was the buzzword at the start of the conference on Tuesday, with talks from some of Europe’s leading tech companies, including Mistral AI. There was an AI chatbot “co-host” being interviewed on stage, which didn’t work properly at first, and a mind-controlled beer pouring robot on display.

Fintech – or financial technology – companies have struggled since 2022 to raise the money needed to fund their operations after central banks raised rates to fight inflation, ending the era of free flow of liquidity.

Dugauquier, who recently closed a $5.3 million funding round, said: “It took eight months whereas I imagine two years ago it would have taken three months. So it’s getting better, but we’re definitely not going back to the crazy times.

For investors looking to gauge the state of the industry, the main areas of concern were companies’ valuations, their path to profitability in a European economy lagging behind the United States, and how they were handling growing regulatory scrutiny of the sector.

“To be honest, I don’t know if we’re at the end of the downturn in the cycle, because interest rates are still high,” said Helene Falchier, partner at fintech-focused venture capital firm Portage Ventures. It has assets under management worth $2.5 billion.

Venture capital funding flowing into fintech in Europe fell sharply last year to $9.2 billion in 2023 from $26 billion in 2022, PitchBook data shows.

There are few signs of fintech fundraising returning to pandemic-era highs, with funding volumes reaching just $4.4 billion in Europe by the end of May, data shows.

Portage Ventures’ Falchier said the company’s founders have learned lessons from the pandemic era and are more realistic about valuations, although deal flow is still affected by external events.

“We’re in this area where when there’s good news I think everyone is really excited and wants to get deals done,” Falchier said. But he also said the market is sensitive to bad news and geopolitical issues.

PROFITABLE

Some delegates were more optimistic, noting that the Money20/20 event had grown rapidly compared to previous years.

Monica Long, president of US cryptocurrency firm Ripple, said people flying from the US to Amsterdam suggests fintech is doing well and booming in Europe.

“Cryptocurrency-related start-ups are doing better in Europe than in most countries. There are more cryptocurrency banks here in Europe than anywhere else,” he told Reuters in an interview.

While valuations have fallen across fintech sectors globally, executives at the conference said the outlook appears brighter for companies with proven profitability.

Kunal Jhanji, head of fintech and payments at Boston Consulting Group in the U.K., said in emailed comments that European companies’ valuations were not as “pushed up” as those of Asian and U.S. companies because they had less access to capital, and so they were “The corner on profitability has been quietly turning for some time.”

IPO activity and mergers and acquisitions should pick up next year as interest rates fall, he added.

British digital bank Monzo, which reported its first annual profit this week, secured £340 million of new funding in March in a round led by Alphabet, valuing it at £4 billion ($5.11 billion) , an increase from a round in 2021.

“What I know for sure is that there is enough interest in profitable companies… if unit economics are on your side, you will still be able to attract great valuations,” said Ani Sane, co-founder and chief business officer of payments company TerraPay in London.

TerraPay has raised more than $100 million in 2023 in equity and debt financing.

European companies have generally found it difficult to raise funds locally, sending them to the United States where capital markets are deeper, and prompting European governments to try to make it easier for startups to access finance.

Delegates also said expectations that fintech companies would disrupt traditional finance proved wrong.

“I remember when fintech was first described, there was a sense that fintech companies would be very disruptive to major institutions, potentially even capable of taking significant market share,” said Joanne Hannaford, who leads technology strategy at Deutsche Bank’s corporate bank.

“In reality that hasn’t actually materialized.”

($1 = 0.7821 pounds)

(Reporting by Elizabeth Howcroft; Editing by Tommy Reggiori Wilkes and Jane Merriman)

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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.”