Fintech
Post Investment: Can Fintech Rebuild on Value, Not Hype? You might be surprised!
The pendulum seems to be swinging from the era of easy capital and rapid growth to a more sobering reality of value creation.
In this transformative period, Scott Dawson, a seasoned veteran with over two decades of experience in the payments industry and currently the head of sales and strategic partnerships at payment platform DECTA, delves into this transition, offering an understanding of the strategic opportunities emerging amid industry challenges.
In the middling science fiction novel Those Who Remain, author G. Michael Hopf said: “Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times.” This quote (which in modern terms obviously relates to all human beings) has become something of a catch-all sentiment for ‘decadence’.
The Great Depression in the 1930s is a good example of a time that this quote capture well: When economic turmoil challenged communities and individuals, making it necessary to adapt innovate, and endure severe economic hardships. As a result, a hardier society emerged, giving rise to a generation that understood the value of hard work, frugality, and community support. The Metaphor works equally well if we switch ‘men’ to ‘companies’.
In fact, it sheds some much-needed light on the trajectory of business in the 21st century. In good times investors, flush with cash, invest in thousands of weak businesses, these businesses fail and investors are forced to find more reliable sources of profit and then, again flush with cash, they return to spraying billions of dollars at any Standford drop-out with a pitch deck and a hoodie.
With fintech investment now a quarter of what it was a year ago, it seems that the good times are over and the hard times are here in earnest. Key to this has been interest rates: the very same mechanism that means that fuel and food is now more expensive than ever before also means that it is more expensive to borrow large sums of money.
Following the Great Recession of 2008, many first-world nations adopted Zero Interest Rate Policy (ZIRP) as a means of boosting investment. If companies can borrow at zero or close to zero percent interest then they should, economists say, found profitable businesses, create jobs and stimulate the economy.
Theoretically, this approach is solid except for the fact that it doesn’t always work. Japan did just this, going so far as having negative interest rates, in the 1990s ‘lost decade’ and it didn’t work. But a byproduct was massive investment funds like Softbank Vision Fund, which in turn supported many of the big names of the ZIRP-era: Doordash, Uber, WeWork, Revolut, Slack, FTX and Klarna, among others. That being said, FTX has since collapsed due to fraud, while WeWork went bankrupt and Uber posted its first profitable quarter this year – despite being founded in 2017.
However, to the strategically minded, every crisis is an opportunity. Fintech now has the chance to get real about creating companies that really create value, that are of service to the community and solve real problems instead of jumping from one VC cash infusion to the next.
The fintech cycle beings again
Fintech investment in 2023 was a quarter of what it was in 2022, and a fifth of its peak in 2021. In the UK, one of the world’s great Fintech hubs, investment is down 57 per cent. This isn’t the same across the board: the percentage of VC funding going to fintech startups is down five per cent on 2022 and seven per cent since its high of 20 per cent in 2021. The creation of new unicorns is also down significantly: 59 companies had exits of over a billion dollars in Q2 of 2021 – in Q2 of 2023 the figure was only two. In short, VCs seemingly just aren’t that into fintech anymore.
This is in stark contrast with previous decade: PayPal, Revolut, Venmo, Stripe and Klarna became multi-billion dollar businesses almost overnight and remain so by giving people access to services that traditional financial services companies couldn’t offer – instant payments or buy-now-pay-later financing. To find these diamonds in the rough the venture capital world had to burn through hundreds of no-so-shiny diamonds, often at great cost – those 59 startups with exits in Q1 2021 aren’t likely to be household names today, if they even still exist.
Anyone who has been at a fintech conference in the last decade might have been given a business card and tote bag by a company with a clever name, stylish design, scads of VC money but with no obvious reason to exist. Such companies might not provide a new or better solution to an existing problem or have a real addressable market, and quite often no plan to become a profitable business.
This preference for growth over profit is key and is one of the defining aspects of the ZIRP era. Of course, there are example where it was been responsible for massively successful companies: Amazon dramatically cut prices of books to the point that physical bookstores were going out of business, eventually expanding its customer base so much that it cannot fail to turn a profit – it is selling so much that even the pennies it makes on a sale add up to hundreds of billions of dollars in gross profit each year.
However, its rate of growth is falling, despite a marked upturn during the pandemic, falling from an average of around 40 per cent YoY quarterly growth in the early 2010s to 30 per cent later in that decade and now a flat 20 per cent. It has now transitioned from a period of rapid growth to a profit-driven model, something that many other growth-oriented companies have failed to do.
Getting real about profit
As the faucet of cheap money shuts off, the VCs face a reckoning. The shotgun approach of spraying cash at hundreds of companies in the hope of striking gold won’t cut it anymore. The new imperative? Finding the needle in the haystack – those rare gems with genuine profit potential and genuine solutions to real problems.
It is important to say that fintech investment is still happening, albeit at a deteriorated rate. But some startups are choosing alternative paths, wary of the VC roller coaster. This could mark a welcome shift: a refocus on problem solving first, growth second. The road ahead might be bumpy, but it could be the very dose of reality the industry needs. It’s time to build for value, not just valuation.
Source: thefintechtimes.com
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As we close out 2024, the fintech industry continues to deliver headlines that underscore its dynamism and innovation. From IPO aspirations to groundbreaking regulatory milestones, today’s updates highlight the transformative power of fintech partnerships, regulatory evolution, and disruptive technologies. Here’s what you need to know.
Chime’s Quiet Step Toward Public Markets
Chime, the U.S.-based financial technology startup best known for its digital banking services, has taken a significant step by filing confidential paperwork for an initial public offering (IPO). As one of the most valuable private fintechs in the U.S., Chime’s move could potentially signal a renewed appetite for fintech IPOs in a market that has been cautious following fluctuating valuations across the tech sector.
With a valuation that reportedly exceeded $25 billion in its last funding round, Chime’s IPO could set a new benchmark for the industry. Observers note that its strong customer base and revenue growth may make it an appealing choice for investors seeking to capitalize on the digital banking boom. However, the timing and success of the IPO will depend on broader market conditions and the regulatory landscape.
Source: Bloomberg
ZBD’s Pioneering Achievement: EU MiCA License Approval
ZBD, a fintech company specializing in Bitcoin Lightning network solutions, has made history by becoming the first to secure an EU MiCA (Markets in Crypto-Assets Regulation) license. This landmark approval by the Dutch regulator positions ZBD at the forefront of compliant crypto-fintech operations in Europe.
MiCA, which aims to harmonize the regulatory framework for crypto-assets across the EU, has been a focal point for industry players aiming to establish legitimacy and expand their offerings. ZBD’s achievement not only validates its operational rigor but also sets a precedent for other fintech firms navigating the evolving regulatory landscape.
Industry insiders view this as a strategic advantage for ZBD as it broadens its footprint in Europe. By leveraging its regulatory approval, the company can accelerate its product deployment and establish trust with institutional and retail users alike.
Source: Coindesk, PR Newswire
The Fintech-Credit Union Synergy: A Blueprint for Innovation
The convergence of fintechs and credit unions continues to reshape the financial services ecosystem. Collaborative initiatives, such as the one highlighted in the recent partnership between fintech innovators and credit unions, are proving to be a potent force in delivering tailored financial solutions.
This “dream team” approach allows credit unions to leverage fintech’s technological expertise while maintaining their community-focused ethos. Key areas of collaboration include digital payments, personalized financial management tools, and enhanced loan processing capabilities. These partnerships not only enhance member engagement but also enable credit unions to remain competitive in an increasingly digital-first financial environment.
Industry analysts emphasize that such collaborations underscore a broader trend of traditional financial institutions embracing fintech-driven solutions to bridge service gaps and foster innovation.
Source: PYMNTS
Tackling Student Loan Debt: A Fintech’s Mission
Student loan debt remains a pressing issue for millions of Americans, and a Rochester-based fintech aims to offer relief through its cloud-based platform. This innovative solution is designed to simplify loan management and provide borrowers with actionable insights to reduce their debt burden.
The platform’s features include repayment optimization tools, personalized financial education, and seamless integration with loan servicers. By addressing the complexities of student loan management, this fintech is empowering borrowers to make informed decisions and achieve financial stability.
As the student loan crisis continues to evolve, solutions like this highlight the critical role fintech can play in addressing systemic financial challenges while fostering financial literacy and inclusion.
Source: RBJ
Industry Implications and Takeaways
Today’s updates underscore several key themes shaping the fintech landscape:
- Regulatory Milestones: ZBD’s MiCA license approval exemplifies the importance of regulatory compliance in unlocking growth opportunities.
- Strategic Partnerships: The collaboration between fintechs and credit unions demonstrates the value of combining technological innovation with traditional financial models to drive customer-centric solutions.
- Market Opportunities: Chime’s IPO move reflects a potential revival in fintech public offerings, signaling confidence in the sector’s long-term prospects.
- Social Impact: Fintech’s ability to tackle systemic issues, such as student loan debt, showcases its role as a force for positive change.
The post Fintech Pulse: Your Daily Industry Brief (Chime, ZBD, MiCA) appeared first on News, Events, Advertising Options.
Leading global payments platform SPAYZ.io has confirmed it will be attending iFX EXPO Dubai 2025 on 14 to 16 January. Exhibiting at Stand 64 at Trade Centre Dubai, SPAYZ.io’s team of professionals will be on hand providing live demonstrations of its renowned payment services for payment providers. Attendees will also receive exclusive insight into SPAYZ.io’s plans for 2025 alongside early early access to its upcoming plans for the new year.
SPAYZ.io delivers a host of payment solutions that leverage the latest technological innovations and open access to the fastest growing emerging markets across Africa, Europe and Asia. Over the past year, there has been huge demand for its Open Banking and local payment method services, alongside bank transfers, mass payouts, online banking and e-wallets.
Yana Thakurta, Head of Business Development at SPAYZ.io commented: “We look forward to once again participating at iFX Dubai to expand our network of partners and clients. It’s a fantastic way to kick off the year, connecting with thousands of industry leaders from FOREX platforms to trading companies, and everything in between.
“Our key goal for iFX Dubai EXPO 2025 is to expand our portfolio of solutions and geographies. We’re using this as an opportunity to partner with like-minded entities who share our ambition to provide payment solutions that are truly global.”
Come meet SPAYZ.io’s team at the Trade Centre Dubai at Stand 64. You can also book a meeting slot with a member of a team.
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Airtm, the most connected digital dollar account in the world, is proud to announce the addition of two distinguished industry leaders to its Board of Directors: Rafael de la Vega, Global SVP of Partnerships at Auctane, and Shivani Siroya, CEO & Founder of Tala. These appointments reflect Airtm’s commitment to innovation and financial inclusion as the company enters its next phase of growth.
“We are thrilled to welcome Rafael and Shivani to Airtm’s Board of Directors,” said Ruben Galindo Steckel, Co-founder and CEO of Airtm. “Their unique perspectives and proven track records will be invaluable as we continue scaling our platform to empower individuals and businesses in emerging markets. Together, we’ll push the boundaries of financial inclusion and innovation to create a more connected and equitable global economy. Rafael and Shivani bring a wealth of experience and strategic insight that will strengthen Airtm’s mission to connect emerging economies with the global market.”
Rafael de la Vega, a seasoned leader in fintech global partnerships and technology innovation, is currently the Global SVP of Partnerships at Auctane. With a proven track record of delivering scalable, impactful solutions at the intersection of fintech, innovation, and commerce, Rafael’s expertise will be pivotal as Airtm continues to grow. “Airtm has built a platform that breaks down barriers and opens up opportunities for people in emerging economies to connect to global markets. I am excited to contribute to its growth and help further its mission of fostering financial inclusion on a global scale,” said Rafael.
Shivani Siroya, CEO and Founder of Tala, is a pioneer in financial technology, renowned for empowering underserved communities through access to credit and essential financial tools. Her leadership in leveraging data-driven innovation aligns seamlessly with Airtm’s vision of creating more equitable financial opportunities. “Empowering underserved communities has always been at the core of my work, and Airtm’s mission resonates deeply with me. I’m thrilled to join the Board and work alongside such a dynamic team to expand access to financial tools that truly make a difference in people’s lives,” said Shivani.
The post Airtm Enhances Its Board of Directors with Two Strategic Appointments appeared first on News, Events, Advertising Options.
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