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.
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AMSTERDAM – The financial technology industry is embracing a new normal – with some industry executives and investors believing the sector has hit a “rock bottom.”
Executives and investors told CNBC at the Money20/20 event in Amsterdam last week that valuations had recovered from unsustainable highs during the industry’s heyday in 2020 and 2021.
The days when venture capital flowed into start-ups with bold ideas and little to show for their business metrics and fundamentals are long gone.
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 is the trend of technology companies selling financial services software to other companies – even if these companies do not offer financial products themselves.
“Value is now being attributed to companies that manage to demonstrate that there is a solid use case and a solid business model,” Dimitrova told CNBC.
“The market is recognizing that because three or four years ago that wasn’t necessarily the case anymore, with crazy ideas for 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.
Horacio Villalobos | Getty Images
“I think the market is more sensible now,” she added.
Less visitor frequency, conversations take place on the sidelines
Last week, banks, payments companies and major technology companies showcased their products on the RAI Conference Center exhibition floor in the hope of re-engaging with potential customers after a difficult few years for the industry.
Many attendees that CNBC spoke to mentioned that the conference hall was much smaller in terms of conference attendees and the chatter of delegates streaming to the various booths and booths surrounding the RAI.
Many of the most productive conversations, say some participants CNBC spoke to, actually took place on the sidelines of the event – in bars, restaurants and even at boat parties around Amsterdam once the day on the exhibition 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 seismic multi-billion dollar valuations.
But by 2022, investments fell sharply and fintechs worldwide only raised $164.1 billion. In 2023, funding fell even further to $113.7 billion, a five-year low.
Have we reached the bottom?
And this despite the massive growth of many companies.
The devastating impact of higher interest rates means that even for the hottest and fastest-growing players, financing is either hard to come by – or offered at lower prices than before.
Nium, the Singaporean payments unicorn, said in an announcement on Wednesday that its valuation fell to $1.4 billion in a new $50 million funding round.
Nium CEO Prajit Nanu told CNBC that investors have at times been too distracted by artificial intelligence to pay attention to innovative products and growth stories in the world of fintech.
“Investors are now in the AI mindset,” he told CNBC. “No matter what it costs. I want to get into AI. You’re going to burn a lot of money.”
Nanu added that the trend reflects the “craziness” that fintech has seen in terms of inflated valuations in 2020 and 2021.
Today he believes we have reached a “rock bottom” in fintech market values.
“I believe this is the bottom of the fintech cycle,” Nanu said, adding: “This is the right time to make it in the fintech space.”
Consolidation will be crucial going forward, Nanu said, adding that Nium is eyeing several startups looking for acquisition opportunities.
OpenPayd’s Dimitrova said she is not currently considering bringing in outside investors to raise funds.
However, if OpenPayd were looking to grow its annual recurring revenue past the $100 million mark, venture capital investment would be more heavily considered, she said.
Crypto comeback?
Crypto also made somewhat of a comeback in terms of hype and interest at this year’s event.
Stands from some of the industry’s key players could be seen throughout the RAI site. Ripple, Fireblocks, Token8 and BVNK, a cryptocurrency-focused payment company, were all well represented with notable booths.
CoinW, a crypto exchange backed by Italian soccer star Andrea Pirlo, streamed advertising 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 being touted by bulls as the future of finance.
Despite AI’s great promise to change the way we manage our money, for example, “there is no new AI for money transfer,” says James Black, partner at VC firm IVP – in other words, AI is changing not the infrastructure behind payments.
However, stablecoins, tokens that match the value of real-world assets like the U.S. dollar, are changing the game, he said.
“We have seen the crypto wave, and I think stablecoins are the next wave of crypto that will gain more mass adoption,” Black said.
“If you think about the most exciting payment rails, you have real-time payments – I find that exciting too. And it fits stablecoins.”
ClearBank CEO Charles McManus speaks at the Innovate Finance Global Summit in April 2023.
Chris Ratcliffe | Bloomberg | Getty Images
ClearBank, the British embedded finance startup, is working on launching a stablecoin based on the British pound and is expected to receive a preliminary blessing from the Bank of England soon.
ClearBank CEO Emma Hagen and company chairman Charles McManus told CNBC at its booth at Money20/20 that the stablecoin the company is working on is sufficiently backed by an equivalent number of reserves.
“We are still in the early stages as we learn with our partners,” Hagen told CNBC. “It’s about doing it in a way that gives people the confidence and assurance that there will be practical spending.”
According to McManus, ClearBank is also working with other crypto companies to offer the opportunity to earn high returns on uninvested money.
He declined to reveal the identity of the company or companies with which ClearBank was in discussions.
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2024-06-13 05:51:45
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