What’s trending in fintech and what’s not

AMSTERDAM, NETHERLANDS — Last year’s Money 20/20 — Europe’s largest event for the financial technology industry — had investors and industry insiders buzzing about embedded finance, open banking and banking as a service.

These terms may be ambiguous, but they allow companies of all kinds, including industry giants such as Stripe and Sterling Bank, to develop their own financial services or integrate the services of other companies. It reflects a very real push from technology start-ups to make Products can be embedded in the platform.

A tale of what’s “hot” in fintech as fintech and its main backers, venture capital and private equity, are reeling from a dismal decline in technology valuations and sluggish consumer spending this year. has not changed much.

Investors still love companies that serve businesses, not consumers. In some cases, some people are willing to write a check to a company at a valuation that hasn’t changed since their last funding round. However, there are some important differences. Of particular interest is generative artificial intelligence.

So what’s hot in fintech right now, and what’s not? CNBC spoke with top industry insiders at Money 20/20 in Amsterdam. Here’s what they had to say:

Looking at this week’s Money 20/20, it’s easy to see a clear trend taking place. Corporate or his B2B companies such as Airwallex, Payoneer and ClearBank dominated the show floor, but consumer apps such as Revolut, Starling and N26 were nowhere to be found.

“I think many fintech companies have shifted their focus to enterprise sales because consumers find it difficult to achieve sufficient unit economics. It costs a lot, so we have to sell it to other attendees to justify the expense,” said CEO Richard Davis. A spokesman for British start-up Arica Bank told CNBC.

“B2B is definitely in a good place, both small business and enterprise SaaS. [software-as-a-service] — Proven products and services, proven customer demand, and excellent unit economics. Embedded finance is certainly part of it, but it’s mostly in the early stages, so it’s a long way to go,” Davis said.

B2B Fintech is a startup that develops digital financial products tailored to business. SaaS is software that technology companies sell to their customers as a subscription. Embedded finance refers to the idea of ​​integrating third-party financial services such as bank accounts, brokerage accounts, and insurance policies into other companies’ platforms.

Niklas Guske, who runs Taktile, a fintech startup focused on streamlining insurance underwriting decisions for corporate customers, said the sector is in the midst of a B2B payments and lending renaissance. increase.

“There is a huge opportunity to take lessons from B2C fintech to improve the B2B user experience and provide customers with much better solutions,” said Guske. “This is especially true of SME finance, which has historically been underserved because it has historically been difficult to accurately assess the performance of young and smaller firms. yeah.”

One area fintech companies are focusing on is improving online checkout tools. For example, his payment technology company Stripe says a new version of its checkout screen has increased his customer revenue by 10.5%.

“This is kind of unbelievable,” David Singleton, Stripe’s chief technology officer, told CNBC. “There’s not much he can do to increase revenue by 10% in business.”

On the other hand, companies that tighten up at the event are also the theme.

One employee of a major company who regularly attends the event said he sent fewer people to Money 20/20 and didn’t buy a stand. The employee was not authorized to speak to the media.

In fact, as companies look to scale while cutting spending, many say a key priority is to manage risk well.

“In a time when capital was readily available, many fintech companies were able to subsidize inadequate risk assessments with investor money,” Guske said of the area, noting today’s In the current climate, fintech companies can only benefit if they can identify and secure the right customers, he added.

Guske, who has raised over $24 million from the likes of Y Combinator and Tiger, said, “The proliferation of new data sources and the adoption of sophisticated risk modeling will enable fintech companies to target their ideal customers more than ever before. It’s a new moment to become like that.” global.

However, the main area that received the most attention from Money 20/20 attendees was artificial intelligence.

It’s like ChatGPT, OpenAI’s popular generative AI software that generates human-like responses to user queries, has stunned fintech and banking leaders trying to understand its potential. .

At Wednesday’s closed-door session on the application of fintech in AI, the executives of a startup embed memes into its chat feature and tell Cleo, the company’s chatbot, to “blame” users for poor spending decisions. .

Karan Carvey, head of global operations at Creo, said the company’s AI can connect to customers’ bank accounts to better understand their financial behavior.

“This will enhance our trading understanding and personalized financial advice,” Carvey said in his speech. “We can also leverage AI to take predictive measures to avoid future financial mistakes. For example, we can avoid expensive bank fees that we could have otherwise avoided.”

Teo Blidarus, CEO and co-founder of financial infrastructure firm FintechOS, said generative AI is a boon to platforms like his that allow companies to build their own financial services with little technical experience. .

“AI, especially generative AI, is a big enabler for fintech enabling infrastructure. Because when you look at it, you’re trying to solve where there’s a complexity, “the whole infrastructure thing,” he told CNBC.

“A job that would normally take a week or two can now be done in 30 minutes. I think.” — Creative work, not integration work. ”

Both tech-forward and traditional businesses are automating revenue and finance to handle back-office operations to optimize efficiency, as companies focus on how they can do more with less. He said he was looking at the product.

In fact, Taktile’s Guske said the current demand to continue to scale rapidly while reducing costs has prompted many fintech companies to reduce operating costs through increased automation and reduced manual processes, especially in onboarding and underwriting. It is said that it is reducing and improving efficiency.

“I think the biggest practical application of generative AI is using generative AI to generate signals from raw trading and accounting data,” Guske says.

One thing’s for sure: consumer-facing services aren’t winning over investors.

Valuations of major digital banking and payment groups have fallen significantly this year as shareholders reassessed their business models in the face of rising inflation and rising interest rates.

British forex giant Revolut has had its valuation cut by 46% by shareholder Schroders Capital, meaning a $33 billion to $15 billion valuation, according to filings. UK challenger bank Atom Bank has had its valuation cut by 31% by Schroders.

Investment in European tech start-ups is expected to fall another 39% this year, from $83 billion in 2022 to $51 billion in 2023, according to venture capital firm Atomico.

“No one comes to an event like this to open a new bank account, right?” GoCardless CEO Hiroki Takeuchi told CNBC. “So if I were Revolut or something like that, I would focus more on how to get customers and how to make them happy. How can we get more customers? can you?”

“I don’t think Money 20/20 will really help, so it’s no surprise that we’re moving towards B2B stuff,” Takeuchi said.

Layoffs have also caused a lot of pain for the industry, with UK money transfer company Zeps cutting 26% of its workforce last month.

Business-focused fintech companies that once held high valuations are also struggling, with Stripe announcing a $6.5 billion funding round at a $50 billion valuation (50% off its previous round). , Checkout.com saw its internal valuation drop 15% to $9 billion. According to startup news site Sifted.

This comes after a tumultuous year for the cryptocurrency industry, which has seen project failures and company bankruptcies. This seems to be a big reason why few crypto companies showed up in Amsterdam this year.

Digital asset firms and customer information providers dominated most of the Money 20/20 exhibit during the height of the recent bull market, but conference organizers told CNBC that just 6% of revenue was crypto-related. He said it was from a company. .

The plunge in crypto market liquidity and the US regulatory crackdown on companies and banks trading with the crypto sector has changed the value proposition for investing in digital asset consolidation. Several fintech executives interviewed by CNBC said they were not interested in launching products tailored to cryptocurrencies due to lack of customer demand.

Airwallex is a cross-border payment startup, partnered with banks and regulated in various countries. His CEO of Airwallex, Jack Zhang, said the company has no plans to introduce cryptocurrency support in the near future, especially due to regulatory uncertainty.

In an interview with CNBC on Tuesday, Zhang said, “Maintaining a high standard of compliance and regulation is very important to us…especially with these global banks, dealing with cryptocurrencies is currently It’s a real challenge,” he said.

Prajit Nanu, CEO of Nium, a fintech company whose products allow financial institutions to support cryptocurrencies, said interest in the service has “waned.”

“The banks we are backing today are becoming very skeptical about cryptocurrencies … Seeing the whole ecosystem going through this … difficult time … we are much more skeptical than we were last year. We are carefully considering it,” Nanu told CNBC. in an interview on Tuesday.

Blockchain is no longer the fintech buzzword it once was.

A few years ago, blockchain technology was a hot topic. Big banks once said they were unenthusiastic about the cryptocurrency bitcoin and optimistic about the underlying technology known as blockchain.

Banks praised how ledger technology improves efficiency. However, Money 20/20 barely mentions blockchain.

One exception is JPMorgan, which continues to develop blockchain applications in its Onyx division. Onyx is using this technology to create new products, platforms and marketplaces, such as the bank’s JPM coin, which he uses to transfer funds between some of his institutional clients.

However, Bassak Toprak, executive director of EMEA and head of coin systems at JP Morgan, gave participants a reality check on how limited the practical application of this technology in banking is at the moment.

“I think we’ve seen a lot of POCs[proofs of concept]. They’re great at doing the literal thing and proving the concept. But what we have to do is , I think it’s about making sure you have a commercially viable product: solve a specific problem, maintain customer confidence, solve the problem, and then have a commercially viable product or method. It’s about launching and working with regulators.”

“Sometimes I think the role of regulators is very important for the industry as well.”