Fintech
At Money 20/20, the fintech ecosystem explores ways to scale B2B business models
10 June 2024Money20/20 is Europe’s largest payments and fintech conference and, therefore, a great place to take the pulse of the fintech ecosystem. This year’s recent meeting in Amsterdam was busier than ever and gave us useful insights into what key players in the fintech and payments industry are and aren’t focused on. Here are our five highlights from this year’s event:
1. Optimism persists. First, the mood was quite positive, despite the challenges that fintech financing has faced over the past three years. Venture capital funding for fintechs is down 75% from its 2021 peak, and in the first quarter of this year funding totaled $9 billion, compared to $41 billion in the first quarter of 2021 and to $36 billion in the same period in 2022. , the volume now seems to have stabilized: the year-to-date numbers are more or less the same as the last three quarters of last year. Another reason for the optimism sparked by the conference could be the untapped potential of B2B payments. In fact, this year the focus of the conference was much more on B2B than B2C, reflecting some important changes in the market.
2. Convergence on the horizon. Secondly, taking up this last point, the entire ecosystem is coming together in a new way, reflecting a great desire to solve problems together. We have seen many conversations bringing together fintechs, banks, regulators, platforms and merchants, all looking for ways to unlock new opportunities. All parties have their own priorities and challenges, but, fundamentally, fintechs are seeing that they need banks to achieve their scale, while banks need fintechs to produce products. And there are several topics that everyone will want to work on together, including infrastructure, open banking systemdigital identity, compliance, fraud and anti-money laundering services.
3. Acceleration and scalability in B2B. Third, there is continued acceleration and scaling of B2B business models. Emerging trends indicate an interesting shift in financing towards the middle market: the share of smaller deals, less than $100 million, is increasing. In the first quarter of this year these smaller deals accounted for almost 70% of the total. In the past, there were indicators that many niches were being explored, but this year we have seen that successful business models have spread well, especially in B2B: it almost seems that the more limited funding environment has contributed to focus attention on this area.
4. Cloud migration remains an opportunity. Fourth, there is still a lot of opportunity out there and a lot of ground to make up in several areas. Cloud migration is one of the biggest: all players are in a transition phase, but many still have a long way to go to catch up. Our cloud surveys suggest that while financial institutions globally aspire to invest more than a third of their IT spending in private cloud systems, they spend less than half of that for now. Likewise, there is a lot of ambitious talk about the move to software-as-a-service solutions for payments, but much more action is still needed to make it a reality. If operators gain traction on these and other ways to grow and innovate, market growth could be substantial.
5. Macroeconomics and artificial intelligence in the background. Finally, there were two topics we haven’t heard much about, perhaps surprisingly given the headlines in recent months. The first was the macroeconomic situation, with interest rates apparently remaining higher for longer than expected (although the European Central Bank cut rates this month, potentially triggering a change in direction for others). The second was generative artificial intelligence. Our sense is that many players are still carefully examining use cases but are not yet convinced how to make them work and scale; our expert colleagues wrote on this very topic two weeks ago.
In short, the fintech and payments ecosystem remains vibrant and focused on a new phase of growth. And the new cohesion we are seeing gives us hope.
Albion Murati is a partner in McKinsey’s Stockholm office; Reinhard Höll is a partner in the Düsseldorf office.
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