Fintech has hit rock bottom after falling valuations, executives and venture capitalists say

AMSTERDAM – The financial technology industry is finding a new normal as some industry executives and investors believe the sector has hit rock bottom.

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

Long gone are the days when venture capital came into startups with bold ideas and little to show for it in terms of business performance and fundamentals.

Yana Dimitrova, CEO of embedded finance startup OpenPayd, told CNBC in an interview at the firm’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 businesses that manage to prove that there is a strong use case and a solid business model,” Dimitrova told CNBC.

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

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

Banks, payments companies and big tech companies were showing off their products in the exhibition hall at the RAI conference venue last week, hoping to restart conversations with potential clients after a tough few years for the sector.

Many of the attendees CNBC spoke with noted that the conference room felt much brighter in terms of conference attendees and the bustle of delegates flocking to the various stands and booths around RAI.

Many of the most productive conversations, according to some CNBC contributors, actually took place on the sidelines of the event – in bars, restaurants and even at the boat parties that took place throughout Amsterdam after the day on the show floor was over.

Global fintech funding hit an all-time high of $238.9 billion in 2021, according to KPMG, with companies like Block, Affirm, Klarna and Revolut achieving seismically high multi-billion dollar valuations.

But by 2022, investment levels had plummeted, with fintech companies raising just $164.1 billion worldwide. In 2023, funding fell further to $113.7 billion, a five-year low.

This is despite the massive growth of many companies.

The negative impact of higher interest rates means that even the most active and fastest-growing players find financing either difficult to find or offered at lower prices than before.

Nium, the Singapore-based payments unicorn, said on Wednesday 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 the innovative products and growth stories happening in the fintech world.

“Investors are thinking about artificial intelligence right now,” he told CNBC. “Like, whatever it takes. I want to get into AI. They will eat up a lot of money.”

Nanu added that this trend mimics the “madness” the fintech industry has seen in terms of high valuations in 2020 and 2021.

Today, he believes we have hit rock bottom when it comes to the market value of fintech.

“I believe this is the low end of the fintech cycle,” Nanu said, adding that “now is the right time to be successful in fintech.”

Consolidation will be a key step forward, Nanu said, adding that Nium is considering acquiring several startups.

OpenPayd’s Dimitrova said she is not currently considering bringing in outside investors to raise funds.

But if OpenPayd tries to increase its annual recurring revenue to the $100 million mark, venture capital investment will be more seriously considered, she said.

Cryptocurrency has also made a comeback in terms of hype and interest for this year’s event.

Scattered around the RAI site were stands from some of the industry’s biggest players. Ripple, Fireblocks, Token8 and BVNK, a cryptocurrency-focused payments firm, were prominently present at the notable booths.

CoinW, a cryptocurrency exchange backed by Italian soccer star Andrea Pirlo, advertised across the bridge connecting the conference’s two main halls.

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

Despite AI’s huge promises 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 that underpins payments.

However, he said stablecoins, tokens that match the value of real assets such as the U.S. dollar, are changing the game.

“We’re seeing a wave of cryptocurrencies, and I think stablecoins are the next wave of cryptocurrencies that will gain more mainstream adoption,” Black said.

“If you think about the most interesting payment methods, you have real-time payments – I think that’s interesting too. And this is consistent with stablecoins.”

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

Emma Hagen, ClearBank’s CEO, and Charles McManus, the firm’s chairman, told CNBC at the Money20/20 booth that the stablecoin they are working on will be sufficiently backed by an appropriate amount of reserves.

“We’re in the early stages and we’re learning with our partners,” Hagen told CNBC. “It’s about doing it in a way that gives people confidence and security that makes a practical difference.”

According to McManus, ClearBank also works with other cryptocurrency companies, offering the opportunity to earn high returns on uninvested funds.

He declined to disclose which firm or firms ClearBank was negotiating with.