Fintech has hit rock bottom after valuation collapse, executives and VCs say

AMSTERDAM – The financial technology industry is embracing a new normal – with some industry executives and investors believing the sector has reached a “bottom.”

Executives and investors at the Money20/20 event in Amsterdam last week told CNBC that valuations have corrected from unsustainable highs from the sector’s heyday in 2020 and 2021.

Long gone are the days when venture capital flowed into startups with bold ideas and little to show for business data and fundamentals.

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 refers to the trend of technology companies selling financial services software to other companies, even if those companies do not offer financial products themselves.

“Value is now attributed to companies that manage to prove that a solid use case and business model exists,” Dimitrova told CNBC.

“That’s being recognized by the market because three, four years ago that wasn’t necessarily the case anymore, with crazy ideas about domination and hundreds of millions of dollars in venture capital funding.”

“I think the market is more sensible now,” she added.

Around the trading floor of the RAI conference venue last week, banks, payment companies and major technology companies showed off their wares, hoping to revive conversations with potential customers after a difficult few years for the sector.

Many attendees CNBC spoke to said the conference room was a lot brighter in terms of conference attendees and the chatter of delegates flocking to various booths and booths around the RAI.

Many of the most productive conversations, say some of the attendees CNBC spoke to, actually took place on the sidelines of the event — in bars, restaurants and even boat parties held in Amsterdam once the day on the show floor was over.

Global fintech funding reached a record high of $238.9 billion in 2021, according to KPMG. Companies like Block, Affirm, Klarna and Revolut had reached seismically high valuations of billions of dollars.

But by 2022, investment levels fell sharply and fintechs raised just $164.1 billion globally. In 2023, funding fell even further to $113.7 billion, a five-year low.

This despite the enormous growth of many companies

The devastating impact of higher interest rates means that even for the most popular and fastest growing players, financing is difficult to obtain, or offered at lower prices than before.

Nium, the Singaporean payments unicorn, said in an announcement on Wednesday that its valuation had fallen to $1.4 billion in a new $50 million funding round.

Prajit Nanu, CEO of Nium, told CNBC that investors are sometimes too distracted by artificial intelligence to pay attention to innovative products and growth stories happening in the world of fintech.

“Investors are now in the AI ​​mindset,” he told CNBC. ‘Whatever it costs. I want to participate in AI. They’re going to burn a lot of money.’

Nanu added that the trend mimics the “craze” that fintech saw in terms of frothy valuations in 2020 and 2021.

Today, he believes we have now reached a “bottom” when it comes to fintech market values.

“I believe this is the lowest point of the fintech cycle,” Nanu said, adding that “this is the right time to make it in fintech.”

Consolidation will be key going forward, Nanu said, adding that Nium is eyeing several startups for acquisition opportunities.

OpenPayd’s Dimitrova said she is not currently considering tapping outside investors for fundraising.

But, she said, if OpenPayd tried to push annual recurring revenue above $100 million, venture capital investments would be more heavily considered.

Crypto also made something of a comeback in terms of hype and interest at this year’s event.

Scattered throughout the RAI location were stands of some of the biggest players in the industry. Ripple, Fireblocks, Token8 and BVNK, a crypto-focused payments company, all had a large presence with eye-catching booths nearby.

CoinW, a crypto exchange endorsed by Italian soccer star Andrea Pirlo, ran ads through a bridge connecting two of the conference’s main halls.

Fintech executives and investors CNBC spoke to during this year’s edition of Money20/20 said they are finally seeing a real use case for cryptocurrencies, after years of bulls touting them as the future of finance.

For example, despite AI’s enormous promise to change the way we manage our money, “there is no new AI for moving money,” according to James Black, partner at VC firm IVP – in other words, AI is changing the situation. infrastructure behind payments

But stablecoins, tokens that match the value of real-world assets such as the U.S. dollar, are a game changer, he said.

“We’ve seen the crypto wave and I think stablecoins are the next crypto wave that will see more mass adoption,” Black said.

“If you think about the most exciting payment rails, you have real-time payments – I think that’s exciting too. And it fits with stablecoins.”

ClearBank, the British embedded finance startup, is working to launch a stablecoin backed by the British pound and expects to receive a preliminary blessing from the Bank of England soon.

Emma Hagen, CEO of ClearBank, and Charles McManus, chairman of the company, told CNBC at their booth at Money20/20 that the stablecoin it is working on would be adequately supported by an appropriate amount of reserves.

“We are still in the early stages and learning together with our partners,” Hagen told CNBC. “It’s about doing it in a way that gives people the confidence and security that practical issues will arise.”

ClearBank is also working with other crypto companies to offer the opportunity to earn high returns on uninvested money, McManus said.

He declined to identify the firm or firms ClearBank was in discussions with.