The financial technology industry is going through a significant transformation, with industry executives and investors indicating that the sector may have hit a “bottom.” At the recent Money20/20 event in Amsterdam, there was a consensus that valuations have adjusted from the unsustainable highs of 2020 and 2021. Gone are the days when venture capital poured into startups with ambitious ideas but lack of solid business metrics and fundamentals.
Embedded finance, a trend where technology companies offer financial services software to other businesses, is gaining traction in the industry. Iana Dimitrova, CEO of embedded finance startup OpenPayd, highlighted the shift towards recognizing businesses with a solid use case and business model. This marks a departure from the past when lofty valuations were placed on companies with grandiose plans and significant VC funding.
The fintech funding landscape has undergone a significant shift in recent years. In 2021, global fintech funding peaked at $238.9 billion, with companies like Block, Affirm, Klarna, and Revolut commanding high valuations. However, by 2023, funding levels plummeted to $113.7 billion, marking a five-year low. Despite the strong growth of many companies, the impact of higher interest rates has made funding harder to secure, even for established players.
Prajit Nanu, CEO of Nium, highlighted the growing focus on artificial intelligence by investors, sometimes at the expense of innovative products and growth stories in fintech. This shift mirrors the exuberance and frothy valuations seen in the industry in 2020 and 2021. Nanu believes that the current market values represent the bottom of the fintech cycle, paving the way for consolidation and strategic acquisitions in the future.
Cryptocurrency made a notable comeback at this year’s Money20/20 event, with prominent players like Ripple, Fireblocks, and Token8 showcasing their offerings. Industry experts pointed to stablecoins as the next wave of crypto innovation, highlighting their potential for mass adoption and impact on payment rails. ClearBank, a UK-based embedded finance startup, is working on launching a stablecoin backed by the British pound, emphasizing trust, safety, and practical issuance.
As the fintech industry continues to evolve, the focus is shifting towards sustainability, practicality, and real-world value. The days of inflated valuations and excessive VC funding for unproven concepts are giving way to a more grounded and rational market environment. With a renewed emphasis on innovative products, solid business models, and strategic partnerships, the future of fintech appears to be one of consolidation, growth, and maturity.