Fintech
Fintech Hits Bottom After Valuations Collapse, Executives, VCs Say
Gone are the days when venture capital would flow to fintech startups with bold ideas and poor business metrics and fundamentals.
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AMSTERDAM — The financial technology sector is embracing a new normal, with some industry executives and investors believing the sector has hit “bottom.”
Executives and investors at the Money20/20 event in Amsterdam last week told CNBC that valuations have corrected from the unsustainable highs reached during the sector’s heyday in 2020 and 2021.
Gone are the days when venture capital poured into startups with bold ideas and little to show in terms of business metrics and fundamentals.
Iana Dimitrova, CEO of integrated finance startup OpenPayd, told CNBC in an interview at the company’s booth that the market has “recalibrated.”
Embedded finance refers to the tendency for technology companies to sell financial services software to other companies, even if those companies do not directly offer financial products.
“The value now is placed on companies that can demonstrate that they have a solid use case and a solid business model,” Dimitrova told CNBC.
“This is recognized by the market, because three, four years ago that wasn’t necessarily the case anymore, with crazy domain ideas and hundreds of millions of dollars of venture capital funding.”
Iana Dimitrova, CEO of OpenPayd, speaks on stage at the Web Summit in Lisbon, Portugal.
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“I think the market is more reasonable now,” he added.
The pace is lighter, the conversations take place on the sidelines
Last week, banks, payment companies and big tech companies showcased their products at the RAI conference venue, hoping to rekindle conversations with potential customers after a difficult few years for the industry.
Many attendees CNBC spoke to said the conference room was much smaller in terms of attendees and the number of delegates pouring into the various booths and stands around RAI.
Many of the most productive conversations, according to some attendees interviewed by CNBC, actually took place on the fringes of the event, in bars, restaurants and even on boat parties hosted around Amsterdam after the day at the fair concluded.
In 2021, global fintech funding hit an all-time high of $238.9 billion, according to KPMG. Companies like Block, Affirm, Klarna, and Revolut reached seismic multi-billion dollar valuations.
But by 2022, investment levels had fallen sharply, with fintechs globally raising just $164.1 billion. In 2023, funding fell further to $113.7 billion, a five-year low.
Have we hit rock bottom?
And this despite the massive growth of many companies.
The devastating impact of higher interest rates means that even the fastest-growing and most promising players are finding financing difficult to come by, or are being offered at lower prices than before.
Singapore payments unicorn Nium said in an announcement Wednesday that its valuation has dropped to $1.4 billion in a new $50 million funding round.
Prajit Nanu, CEO of Nium, told CNBC that investors have sometimes been too distracted by artificial intelligence to pay attention to the innovative products and growth stories happening in the world of financial technology.
“Investors are in the AI mindset now,” he told CNBC. “Like, whatever it takes. I want to get into AI. They’re going to burn a lot of money.”
Nanu added that this trend mimics the “madness” the fintech industry experienced in terms of sky-high valuations in 2020 and 2021.
Today he believes we have hit “bottom” for financial technology market values.
“I think this is the low point of the fintech cycle,” Nanu said, adding that “this is the right time to be successful in fintech.”
Consolidation will be key going forward, Nanu said, adding that Nium is keeping an eye on several startups for acquisition opportunities.
OpenPayd’s Dimitrova said she is not currently considering raising funds from outside investors.
However, he said, if OpenPayd wanted to accelerate its annual recurring revenue beyond the $100 million mark, venture capital investments would be seriously considered.
The return of cryptocurrencies?
Cryptocurrencies also made a comeback in terms of hype and interest during this year’s event.
Scattered around the RAI venue were booths from some of the industry’s biggest players. Ripple, Fireblocks, Token8, and BVNK, a cryptocurrency-focused payments company, all had a large presence with notable booths around.
CoinW, a cryptocurrency exchange sponsored by Italian soccer star Andrea Pirlo, had advertising run across a bridge connecting two of the conference’s main rooms.
Fintech executives and investors CNBC spoke to for this year’s Money20/20 said they were finally seeing real adoption of cryptocurrencies, after years of bulls touting them as the future of finance.
Despite the great promise of AI to change the way we manage our money, for example, “there is no new AI for moving money,” according to James Black, a partner at venture capital firm IVP; in other words, AI is not changing the infrastructure behind payments.
However, he said that stablecoins, tokens whose value is equal to that of real assets such as the U.S. dollar, are changing the rules of the game.
“We’ve seen the cryptocurrency wave, and I think stablecoins are the next wave of cryptocurrencies that will get mass adoption,” Black said.
“If you think about the most exciting payment systems, you have real-time payments—I think those are exciting, too. And they fit with stablecoins.”
Charles McManus, CEO of ClearBank, speaks at the Innovate Finance Global Summit in April 2023.
Chris Ratcliffe | Bloomberg | Getty Images
ClearBank, the UK’s cloud-based clearing bank, is working on launching a stablecoin backed by the British pound, which it expects to receive the Bank of England’s provisional blessing soon.
Emma Hagen, ClearBank’s new UK CEO and head of risk and compliance, and Charles McManus, the company’s global CEO, told CNBC at their booth at Money20/20 that the stablecoin they are working on would be sufficiently backed by a corresponding number of reserves.
“We’re in the early stages of learning with our partners,” Hagen told CNBC. “It’s about doing it in a way that gives people that confidence and assurance that there will be a practical issuance.”
ClearBank is also partnering with other cryptocurrency firms to offer the ability to earn high returns on uninvested money, McManus said.
He refused to reveal the identity of the company, or companies, with which ClearBank was dealing.