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Fintech executives descend on Amsterdam for the annual Money2020 conference.
Mackenzie Cigalus
AMSTERDAM, Netherlands – At last year’s Money 20/20 event – Europe’s preeminent event for the fintech industry – investors and industry insiders were weary talking about embedded finance, open banking, and banking as a service.
As vague as these terms may seem, they reflect a very real push from tech startups, including the biggest names in the business like Stripe and Starling Bank, to allow companies from all walks of life to develop their own financial services, or merge other companies. products on their platforms.
This year, with fintech companies and their venture capital and private equity backers hurting from a sharp slump in technology valuations and a drop in consumer spending, the narrative around what’s “hot” in fintech hasn’t changed much.
Investors still love companies that provide services to institutions rather than consumers. In some cases, they have been willing to write checks to companies with valuations unchanged from the latest funding round. But there are a few key differences – not the least of which is the curious one that is generative AI.
So what’s new in fintech now? And why not? CNBC spoke with some of the industry’s top insiders at Money 20/20 in Amsterdam. That’s what they had to say.
what’s hot?
Looking at Money 20/20 this week, it was easy to see a clear trend happening. Business- or business-facing companies like Airwallex, Payoneer, and ClearBank dominated the show floor, while consumer apps like Revolut, Starling, and N26 were nowhere to be found.
“I think many fintechs have focused on enterprise sales after finding the consumer difficult to achieve sufficient economics for the unit — plus it’s very expensive to get a platform and attend M2020, so you have to sell to other attendees to justify the expense,” said Richard Davies, CEO of UK startup lender Allica Bank, told CNBC.
“B2B is definitely in good shape – both SME and Enterprise SaaS (Software as a Service) – offering you exposure to your products and services, proven customer demand, and good unit economics. Funding included is certainly part of this and a long way to go as it is in cradle it in most cases.”
B2B fintechs are startups that develop digital financial products designed for businesses. SaaS is software that technology companies sell to their customers as a subscription. Embedded finance refers to the idea of third-party financial services such as bank accounts, brokerage accounts, and insurance policies that are integrated into other corporate platforms.
Niklas Joske, who directs operations at Taktile — a fintech startup focused on simplifying underwriting decisions for institutional clients — describes the sector as being in the middle of a B2B payments and finance renaissance.
“There is a huge opportunity to take lessons from B2C fintechs to elevate the B2B user experience and offer better solutions to customers,” said Guske. “This is particularly true in small and medium-sized enterprise finance, which has traditionally been underserved because it has historically been difficult to accurately assess the performance of smaller or smaller firms.”
One area that fintechs are excited about is improving online payment tools. Payments technology company Stripe, for example, says a new version of its payment surfaces helped customers increase revenue by 10.5%.
“It’s kind of unbelievable,” David Singleton, Stripe’s chief technology officer, told CNBC. “There aren’t a lot of things you can do in business that increase your profits by 10%.”
Meanwhile, companies tightening their belts in the event is also a theme.
An employee of a major company that usually attends the event said they underestimated the number of people who sent to Money 20/20 and didn’t even buy a booth. The employee is not authorized to speak to the media.
Indeed, as companies look to expand while cutting spending, many say the main priority is managing risk appropriately.
“When funds were readily available, many fintechs could back up poor risk assessments with investors’ money,” Josky said of the sector, adding that in today’s climate, fintechs are only profitable if they can identify and secure the right clients.
said Guske, who has raised more than $24 million from the likes of Y Combinator and Tiger Global.
Generative artificial intelligence
However, the main area that drew the most buzz from Money 20/20 attendees was artificial intelligence.
This is like ChatGPT, OpenAI’s popular generative AI software that produces human-like responses to user queries, dazzling fintech and bank leaders looking to understand its potential.
In a closed session on AI fintech on Wednesday, a startup president showed how they use technology to be more creative in communications with their customers by incorporating memes into the chat function and letting its chatbot, Cleo, “roast” users about bad spending decisions.
Callan Carvey, Cleo’s global chief operating officer, said the company’s artificial intelligence connects to a customer’s bank account to gain a better understanding of their financial behavior.
“It enhances our understanding of transactions and this very personal financial advice,” Carvey said during her talk. “They also allow us to take advantage of artificial intelligence and have predictive measures in place to help you avoid future financial mistakes,” such as avoiding huge bank fees that you could avoid otherwise.
Teo Blidarus, CEO and co-founder of financial infrastructure company FintechOS, said generative AI has been a boon for platforms like his, where companies can build their own financial services with little technical expertise.
“Artificial intelligence, especially generative AI, is a huge enabler of fintech enabling infrastructure, because if you’re looking for barriers that don’t try low programming, no code on one side and generative AI on the other, solve it if the complexity of the architecture comprehensive infrastructure.
“A job that normally takes about a week or two can now be completed in 30 minutes, right. You still have to improve it a bit, but I think mainly it allows you to spend your time on more productive things — creative things rather than doing integration.”
As companies become more focused on how to do more with less, both traditional and traditional businesses say they’ve turned to finance and revenue automation products that handle back-office processes to try to improve efficiency.
In fact, Taktile’s Guske notes that the current demand to continue scaling quickly while simultaneously reducing costs has prompted many fintechs to reduce operating expenses and improve efficiency through increased automation and less manual processes, particularly in underwriting and underwriting.
“I see the biggest real application of generative AI in using it to generate signals from raw transactions or accounting data,” Josky said.
why not?
One thing’s for sure: consumer-facing services aren’t what investors love.
This year has seen major digital banking and payment groups suffer sharp drops in their valuations as shareholders reassess their business models in the face of rising inflation and rising interest rates.
Revolut, the British foreign exchange services giant, cut its valuation by shareholder Schroders Capital by 46%, marking a $15 billion downgrade from $33 billion, according to one document. Schroders downgraded Atombank, a rival bank in the UK, by 31%.
It is about investing in emerging European technology companies It’s on track to drop another 39% this year, from $83 billion in 2022 to $51 billion in 2023, according to venture capital firm Atomico.
“No one comes to these events to open such a new bank account, right?” GoCardless CEO Hiroki Takeuchi told CNBC. “So if I’m Revolut, or something like that, I’m more focused on how do I get my clients and how do I make them happy. How do I get more of them? How do I develop them?”
“I don’t think Money 20/20 is really helping with that. So it doesn’t surprise me that there’s more of a shift towards B2B stuff,” Takeuchi said.
Layoffs have also been a huge source of industry pain, as Zepz, the UK money transfer company, cut 26% of its workforce last month.
Even once high-net-worth business-focused fintechs suffered, Stripe announced a $6.5 billion fundraiser at a $50 billion valuation — a 50% discount from its last round — and Checkout.com saw its valuation drop 15%. internally to 9 billion dollars, according to Sifted site startup.
Fintechs Cooling Down On Cryptocurrencies
During the height of the latest bull run, digital asset firms and KYC providers dominated much of the Money 20/20 Expo floor, but conference organizers told CNBC that only 6% of revenue came from companies with a cryptocurrency affiliation.
Decreased liquidity in the cryptocurrency market, coupled with a regulatory crackdown in the United States on companies and banks dealing with the crypto sector, has altered the value proposition of investing in digital asset integration. Several fintech executives interviewed by CNBC spoke of their lack of interest in launching products specifically designed for cryptocurrency because the demand from their clients is lacking.
Airwallex, a cross-border payments startup, is partnering with banks and is subject to regulation in different countries. Airwallex CEO Jack Zhang said that the company will not offer support for cryptocurrency in the near future, especially with the regulatory uncertainty.
“It is very important for us to maintain a high level of compliance and regulation… It is a real challenge right now to do business with cryptocurrencies, especially with these global banks,” Zhang told CNBC in an interview on Tuesday.
Prajit Nano, CEO of Nium, a fintech company that has a product that allows financial institutions to support cryptocurrencies, said interest in the service has been “declining.”
“The banks that we run today are becoming very skeptical about cryptocurrencies…because we see the overall ecosystem going through this…difficult time…we’re looking at it much more carefully than we were looking at it last year,” Nano told CNBC. In an interview on Tuesday.
Blockchain is no longer the buzzword it once was in the financial technology space.
A few years ago, the trendy thing to talk about was blockchain technology. The big banks used to say that they weren’t keen on the cryptocurrency bitcoin but instead were optimistic about the underlying technology known as blockchain.
Banks have praised the way ledger technology can improve efficiency. But blockchain was barely mentioned in Money 20/20.
The only exception was JPMorgan, which continues to develop blockchain applications using its Onyx arm. Onyx uses technology to create new products, platforms and marketplaces – including the bank’s JPM coin, which it uses to transfer funds between some of its institutional clients.
However, Basak Toprak, CEO EMEA and Head of Currency Systems at JPMorgan, gave attendees a reality check on how limited the practical use of technology in banking is right now.
“I think we’ve seen a lot of POCs, proof-of-concepts, which are great at doing what they say on the box, proof-of-concept. But I think what we need to do is make sure we’re making commercially viable products that solve specific problems, maintain customer confidence, solve problems, then launch a product or a way to do things that are commercially viable, and work with regulators.”
“I think sometimes the role of regulators is also very important for the industry as well.”
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