Fintech Valuations Plunge as Investment Focus Shifts
The fintech industry is at its lowest, thanks to plunging valuations and reduced funding. This is according to Fintech Investors and Executives who attended the Money20/20 event last week in Amsterdam. CNBC suggests the Fintech valuations plunge is a result of market corrections from the highs of the early 2020s.
Market Changes
Times have changed. Venture capital no longer flows to startups that pitch bold ideas but need more business basics and metrics.
In an interview with CNBC, OpenPayd CEO, Iana Dimitrova said, “Value is now ascribed to businesses that manage to prove there is a solid use case, solid business model.”
OpenPayd is an embedded finance startup. Embedded finance is when tech companies sell financial service software to other firms. This happens even when those firms don’t provide financial products.
“That is recognised by the market, because three, four years ago, that was not necessarily the case anymore, with crazy ideas of domination and hundreds of millions of dollars in VC funding,” she added.
Less Fintech Investment
Globally, funding for fintech startups has dropped significantly. 2021 recorded the highest financing at a peak of $238.9 billion. Valuations for fintech companies like Affirm, Revolut, Block, and Klarna hit multi-billion marks.
But this was short lived. Fintech valuation plunge on funding started in 2022. In this year, fintechs raised $164.1 billion. Fintech investment was reduced further in 2023 to a low of $113.7 billion.
Singaporean Fintech Nium announced a drop in its valuation. In a recent 50 million funding round, the company said its valuation had dropped to $1.4 billion.
Fintech companies are also contending with higher interest rates. This means that even the most viable startups find it hard to raise funds. And where funding is available, it’s offered at a higher price than before.
Shift to AI
Nium’s CEO, Prajit Nanu says investors’ attention has shifted attention from fintech to AI.
“Investors are now in the AI mindset. Like, whatever it costs. I want in on AI. They’re going to burn a lot of money,” he said.
According to Nanu, the current AI valuation craze is very similar to what fintech experienced in 2020 and 2021. He believes fintech market valuations have not hit rock bottom. Nium holds that consolidation will be critical for fintech firms. His firm is looking to acquire several startups.
“I believe that this is the lowest end of the fintech cycle. This is the right time to make it in fintech,” he added.
OpenPayd said its immediate plans don’t include fundraising from external investors. But, the company remains open to venture capital.
Positive Crypto Outlook
Even with the fintech valuations plunge, some investors and executives are hopeful about cryptos. James Black, a partner at a Venture Capital Firm, said that AI will change how people manage money.
But there’s no AI for moving money. This means it’s not changing the payment infrastructure. He says tokens and stablecoins that match real-world assets are changing things.
“We’ve seen the crypto wave, and I do think that stablecoins are the next wave of crypto that will gain more mass adoption. If you think about the most exciting payment rails, you have real-time payments. I think that’s exciting, too. And it fits in with stablecoins,” Black said.
Some fintechs are already working on unveiling stablecoins. The UK’s ClearBank is working on a stablecoin that will be underpinned by the British pound.
