Here’s what’s popular in fintech right now – and what isn’t.

AMSTERDAM, THE NETHERLANDS (AP) — Last year at Money 20/20, Europe’s premier financial technology event, investors and industry insiders were buzzing about embedded finance, open banking, and banking-as-a-service.

As hazy as these phrases may be, they reflect a very genuine effort from internet startups, including some of the industry’s biggest names like Stripe and Starling Bank, to empower businesses of all sizes to build their own financial services or integrate the products of other organizations into their platforms.

With fintech and their mostly venture capital and private-equity investors hurting from a precipitous drop in technology valuations and lower consumer spending this year, the narrative surrounding what’s “hot” in fintech hasn’t altered all that much.

Investors continue to favor companies that provide services to businesses rather than consumers. In certain circumstances, they’ve been ready to write checks at the same values as their previous investment round. But there are a few major differences, not the least of which is generative artificial intelligence.

So, what’s trending in fintech right now? And what isn’t? At Money 20/20 in Amsterdam, CNBC chatted with some of the top industry experts. Here’s what they had to say about it.

What’s new?
Looking through Money 20/20 this week, it was easy to see a distinct pattern. Business-to-business businesses such as Airwallex, Payoneer, and ClearBank dominated the exhibition floor, but consumer applications such as Revolut, Starling, and N26 were absent.

“I think many fintechs have pivoted to enterprise sales having found consumer difficult to make sufficient unit economics — plus it’s pretty expensive to get a stand and attend M2020 so you need to be selling to other attendees to justify the outlay,” Richard Davies, CEO of UK startup lender Allica Bank, told CNBC.

“B2B is in good shape — both SME and enterprise SaaS [software-as-a-service] — as long as you can demonstrate your products and services, have proven customer demand, and good unit economics.” “Embedded finance is definitely a part of this, and it has a long way to go because it is still in its infancy in most cases,” Davies added.

Startups that produce digital financial solutions customized to companies are known as B2B fintech. SaaS is software that technology companies offer to their clients on a subscription basis. Embedded finance is the concept of integrating third-party financial services such as bank accounts, brokerage accounts, and insurance policies into the platforms of other organizations.

Tactile, a fintech start-up focused on expediting underwriting decisions for corporate clients, is in the midst of a B2B payments and finance revolution, according to Niklas Guske, who heads operations.

“There is a huge opportunity to take lessons from B2C fintech and uplevel the B2B user experience and deliver far better solutions for customers,” Guske added. “This is particularly true in SME finance, which has traditionally been underserved because it has historically been difficult to accurately assess the performance of younger or smaller companies.”

An upgrade to online checkout systems is one area that financial businesses are enthused about. Stripe, for example, claims that a newer version of its checkout interface has helped users raise revenue by 10.5%.

“That is kind of incredible,” Stripe’s chief technical officer, David Singleton, told CNBC. “There aren’t many things you can do in business to increase revenue by 10%.”

Meanwhile, a theme at the gathering is firms tightening their belts.

One employee of a prominent corporation that often attends the event stated that they had reduced the amount of personnel they send to Money 20/20 and have not even purchased a booth. The employee had not been given permission to speak to the media.

Indeed, as businesses try to grow while reducing costs, many believe risk management is a top concern.

“When funds were readily available, many fintech could subsidize poor risk assessments with investor money,” Guske said of the industry, adding that in today’s environment, fintech is only lucrative if they can discover and secure the proper consumers.

“This is yet another moment where the proliferation of new data sources and the adoption of sophisticated risk modeling enables fintech to better target their ideal customers than ever before,” said Guske, who has received more than $24 million from investors including Y Combinator and Tiger Global.

AI generation
The major topic of discussion among Money 20/20 participants, however, was artificial intelligence.

ChatGPT, OpenAI’s popular generative AI program that generates human-like replies to user inquiries, has captivated finance and banking experts eager to comprehend its potential.

In a closed-door session on the application of fintech in AI on Wednesday, one startup CEO described how they’re using the technology to be more creative in their communications with customers by incorporating memes into the chat function and allowing their chatbot, Cleo, to “roast” users about poor spending decisions.

Cleo’s worldwide head of operations, Callan Carvey, explained that the company’s AI links to a customer’s bank account to gain a deeper knowledge of their financial habits.

“It powers our transaction understanding and that deeply personalized financial advice,” said Carvey during her presentation. “It also allows us to leverage AI and have predictive measures to help you avoid future financial mistakes,” such as avoiding punitive bank fees.

According to Teo Blidarus, CEO and co-founder of FintechOS, generative AI has been a benefit to platforms like his, where enterprises may design their own financial services with minimum technical skills.

“AI, particularly generative AI, is a big enabler for fintech enablement infrastructure, because if you look at what the barriers that low code, no code, and generative AI are trying to solve is the complexity of the overall infrastructure,” he told CNBC.

“A job that would normally take one or two weeks can now be completed in 30 minutes, right?” Granted, you still need to polish it a little, but I believe it allows you to concentrate your time on more productive — creative — tasks rather than integration work.”

As organizations strive to accomplish more with less, both tech-forward and conventional firms say they are turning to revenue and finance automation technologies that manage back-office activities to improve productivity.

Indeed, Taktile’s Guske notes that the current demand to continue scaling rapidly while reducing costs has driven many fintech to reduce operational expenses and improve efficiency through increased automation and reduced manual processes, particularly in onboarding and underwriting.

“I see the biggest, actual application of generative AI in using it to create signals out of the raw transaction or accounting data,” Guske added.

What’s not to like?
One thing is certain: consumer-oriented services are not popular among investors.

This year has seen major digital banking and payment businesses’ values plummet as shareholders reevaluated their business models in light of rising inflation and interest rates.

According to a filing, Revolut, the British foreign exchange services company, had its valuation lowered by 46% by stakeholder Schroders Capital, meaning a $15 billion discount from $33 billion. Schroders reduced Atom Bank’s valuation by 31%, a UK challenger bank.

According to venture capital company Atomico, investment in European digital firms is set to plummet 39% this year, from $83 billion in 2022 to $51 billion in 2023.

“Doesn’t anyone come to these events to open a new bank account?” GoCardless CEO Hiroki Takeuchi told CNBC. “So, if I’m Revolut or something similar, I’m much more focused on how I get customers and keep them happy.” How can I obtain more of them? “How do I raise them?”

“I don’t think Money 20/20 is particularly helpful in this regard.” “It’s not surprising to me that there’s more of a shift toward B2B stuff,” Takeuchi added.

Layoffs have also been a major source of pain for the business, with Zepz, a U.K. money transfer company, laying off 26% of its employees last month.

According to startup news site Sifted, even formerly lavishly valued business-focused fintech have suffered, with Stripe announcing a $6.5 billion round at a $50 billion valuation — a 50% markdown to its last round — and witnessing a 15% decline in its internal valuation to $9 billion.

Fintechs are lowering their bets on cryptocurrency.
As Money 20/20 began, the Securities and Exchange Commission of the United States sued Binance and its creator, Changpeng Zhao, for securities crimes. Shortly after, the SEC filed a lawsuit against Coinbase, saying that the company is operating as an unlicensed broker and exchange.

It follows a rough year for the crypto business, which has seen failed projects and companies go bankrupt, which is likely a large reason why few crypto enterprises attended Amsterdam this year.

Despite the fact that digital asset firms and know-your-customer suppliers dominated most of the Money 20/20 exhibition hall during the most recent bull run, conference organizers told CNBC that just 6% of sales came from companies with a crypto link.

The crypto market’s plummeting liquidity, along with a regulatory crackdown in the United States on corporations and banks doing business with the crypto industry, has changed the value proposition for investing in digital asset integrations. Several fintech CEOs questioned by CNBC stated that they are not interested in introducing crypto-specific solutions since the demand from their clients is not there.

Airwallex, a cross-border payments startup, collaborates with banks and is licensed in several countries. Airwallex CEO Jack Zhang stated that the firm will not be adding cryptocurrency functionality in the foreseeable future, citing regulatory uncertainties.

“It is critical for us to maintain the high level of compliance and regulatory… “Dealing with crypto is a real challenge right now, especially with these global banks,” Zhang told CNBC in an interview on Tuesday.

According to Prajit Nanu, CEO of Nium, a fintech business with a platform that allows financial institutions to embrace cryptocurrency, demand in that service has “fallen off.”

“Banks that we now power have grown quite cautious about cryptocurrency… as we watch the broader ecosystem going through this… the terrible moment… “We’re looking at it much more carefully than we would have looked at it last year,” Nanu said in an interview with CNBC on Tuesday.

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Blockchain is also no longer the finance buzzword it once was.

Blockchain technology was the buzz of the town a few years ago. Big banks used to argue that they weren’t interested in Bitcoin but were excited about the underlying technology known as blockchain.

Banks lauded the ability of ledger technology to boost efficiency. However, blockchain was scarcely discussed at Money 20/20.

JPMorgan, on the other hand, is continuing to explore blockchain applications through its Onyx division. Onyx employs blockchain technology to develop new products, platforms, and markets, such as the bank’s JPM Coin, which is used to move payments between certain of its institutional clients.

However, Basak Toprak, executive director of EMEA and head of coin systems at JPMorgan, reminded delegates of the technology’s current limitations in banking.

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“I believe we’ve seen a lot of POCs, or proof of concepts, that are great at doing what they say on the tin, which is proving the concept.” But, in my opinion, what we need to do is ensure that we produce commercially viable products for solving specific problems, maintain consumer confidence, solve difficulties, and then introduce a commercially viable product or method of doing things while working with regulators.”

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