Gone are the days when venture capital poured into fintech startups with bold ideas but little performance in terms of business metrics and fundamentals.
Bloomberg | Getty Images
AMSTERDAM — The financial technology industry is ushering in a new normal — and some industry executives and investors believe the industry has hit rock bottom.
Executives and investors told CNBC at the Money20/20 event in Amsterdam last week that valuations have adjusted from the unsustainable highs of the industry’s heyday in 2020 and 2021.
Gone are the days when venture capital flowed into startups with bold ideas but little performance in terms of business metrics and fundamentals.
Iana Dimitrova, CEO of embedded finance startup OpenPayd, said in an interview with CNBC at the company’s booth that the market has “recalibrated.”
Embedded finance refers to the trend of technology companies selling financial services software to other companies—even if those companies don’t offer financial products themselves.
“Now, value is given to companies that can prove they have a solid use case, a solid business model,” Dimitrova told CNBC.
“This is recognized by the market because three or four years ago, the situation was no longer necessarily the case, and there were crazy dominant ideas and hundreds of millions of dollars in venture capital.”
OpenPayd CEO Iana Dimitrova spoke at the Internet Summit in Lisbon, Portugal.
Horacio Villalobos | Getty Images
“I think the market is smarter now,” she added.
The footsteps become softer and the conversation happens on the edge
Around the exhibition hall at the RAI conference venue last week, banks, payments companies and big tech companies showcased their products, hoping to reignite conversations with potential customers after a tough few years for the industry.
Many attendees interviewed by CNBC mentioned that there were far fewer attendees in the conference hall, and delegates flocked to various stands and booths around RAI, making the event a bustling event.
Some attendees CNBC spoke with said many of the most productive conversations actually happened on the fringes of the event — in bars, restaurants and even at boat parties held after the show ended.
According to KPMG, global financial technology financing reached an all-time high of US$238.9 billion in 2021. Companies like Block, Affirm, Klarna and Revolut are valued at staggering billions of dollars.
But by 2022, investment levels have dropped sharply, with global fintech companies raising only $164.1 billion. In 2023, funding fell further to $113.7 billion, a five-year low.
Have we reached the bottom?
This is despite the fact that many companies are growing significantly.
The crippling impact of high interest rates means that even the hottest, fastest-growing businesses are finding it harder to get financing, or at lower prices than before.
Singaporean payments unicorn Nium said in a statement on Wednesday that its valuation has dropped to $1.4 billion in a new $50 million funding round.
Nium CEO Prajit Nanu told CNBC that investors sometimes focus too much on artificial intelligence and ignore the innovative products and growth stories happening in the financial technology field.
“Investors are now starting to pay attention to artificial intelligence,” he told CNBC. “Like, whatever it takes. I want to get into artificial intelligence. They’re going to burn a lot of money.”
Nanu added that the trend mimics the “crazy” valuation bubbles seen in fintech in 2020 and 2021.
Today, he believes the fintech market has bottomed out in value.
“I believe this is the bottom end of the fintech cycle,” Nanu said, adding, “Now is the best time to be in fintech.”
Integration will be key to future growth, Nanu said, adding that Nium is looking for acquisition opportunities in multiple startups.
OpenPayd’s Dimitrova said she is not currently considering tapping outside investors for funding.
But, she said, if OpenPayd hopes to accelerate its annual recurring revenue past the $100 million mark, venture capital will be given stronger consideration.
Cryptocurrency making a comeback?
Cryptocurrencies also made a comeback in terms of hype and interest at this year’s event.
Dotted around the RAI venue are the booths of some of the industry’s major players. Ripple, Fireblocks, Token8 and BVNK (a cryptocurrency-focused payments company) all have a big presence, with famous booths all around.
Advertisements for CoinW, a cryptocurrency exchange endorsed by Italian soccer star Andrea Pirlo, flowed through a bridge connecting the conference’s two main halls.
Fintech executives and investors CNBC spoke with at this year’s Money20/20 said that after years of being bullish on cryptocurrencies as the future of finance, they are finally seeing real use cases for cryptocurrencies.
For example, despite the huge promise of artificial intelligence in changing the way we manage money, James Black, a partner at venture capital firm IVP, said that “there is no new artificial intelligence that can be used to move money” – in other words, artificial intelligence has not There are no changes to the infrastructure payments behind it.
However, he said stablecoins, tokens that align with the value of real-world assets such as the U.S. dollar, are changing the game.
“We’ve seen waves of cryptocurrencies, and I do think stablecoins are the next wave of cryptocurrencies that are going to get more mass adoption,” Black said.
“If you think of the most exciting payment method, it’s real-time payments — I think that’s exciting as well. And it lends itself to stablecoins.”
ClearBank CEO Charles McManus speaks at the Innovative Finance Global Summit in April 2023.
Chris Ratcliffe | Bloomberg | Getty Images
British embedded finance startup ClearBank is working on launching a pound-based stablecoin and is expected to receive temporary support from the Bank of England soon.
ClearBank CEO Emma Hagen and the company’s chairman, Charles McManus, told CNBC at the Money20/20 booth that the stablecoin it is developing will receive a corresponding amount of reserves. Fully supported.
“We’re in the early stages of learning with our partners,” Hagen told CNBC. “It’s about giving people the trust and security of an actual issuance.”
McManus said ClearBank also works with other cryptocurrency companies to offer the ability to earn high yields on uninvested cash.
He declined to say which company or companies ClearBank is in talks with.
About The Author
