It’s a time of reflection and anticipation at The Fintech Times throughout December, as we look back at developments and trends over the last 12 months and forward to the year ahead.
We’re excited to share the thoughts of fintech CEOs and industry leaders from across the globe to 2023’s key takeaways and what we should expect to be top of the agenda in 2024.
insights served up today cover a wide range of topics, including investment trends in Latin America, the resilience of investors in the face of economic challenges, the impact of geopolitical risks, the outlook for fundraising in the fintech sector, and the evolving dynamics of the financial industry.
Latin America investment trends
Andrew Seiz, VP of capital markets and investor relations at Kueski, a consumer lending platform specialising in micro loans, discusses the investor outlook for LatAm.
“The first half of 2023 was relatively quiet when it came to the investor landscape in LatAm. However, since markets reopened for IPOs in September, things have picked up. So much of LatAm investment is driven by the US rate cycle, and the US economy and recent data have been favourable in that respect.
“With the growing likelihood of rate cuts from the US Fed next year as inflation eases, investors may be more comfortable deploying capital and this could ultimately benefit emerging markets like LatAm.”
“What we saw with rate hikes this year is concern about the risk of rising delinquencies for banks and consumer and corporate credit companies. However, this generally has not transpired with credit quality weakening being largely contained. Business models in most cases proved to be more resilient than expected. In 2024, there could be more of a focus on these companies especially in cases where the decline in valuations has been excessive relative to the risk profile.”
“2024 should be a better year for companies in LatAm that are seeking investment. As economic conditions in the US and global markets normalise, which we are seeing signs of, there has been renewed investor attention on emerging markets.
“As investors consider geopolitical risks in Eastern Europe, the Middle East and concerns over growth in China, LatAm stands out as a relative safe haven. Moreover, there is a clear trend towards nearshoring, which favours a wide range of sectors in Mexico – infrastructure, logistics, banking and consumer credit – for at least the next five to10 years.”
Fintech sector trends
Alasdair Anderson, vice president at data protection company Protegrity, suggests a trend towards concentrated investments.
He comments: “The fintech investment landscape experienced significant turbulence in 2023, highlighted by Silicon Valley Bank which resulted in a halt in investment activities in the sector.
“A sudden resurgence is unlikely, given the rising interest rates and persistent global uncertainties, but there is a notable trend towards concentrated investments in specific sectors, such as wealth management.
“These are likely to gain momentum in 2024, creating an environment that resembles a smaller-scale boom within the sector.”
Resilience of investors
It’s been quite the year for investment markets, according to David Dyke, head of UK investment platform, CMC Invest.
“While investor goals are personal, it’s always interesting to take a step back and analyse how the industry has responded to challenges and opportunities,” he says.
“While some in the industry have doubted whether ESG investing will persist, our data shows that younger generations are keen on it and proves the need for providers to offer genuine and transparent data on organisations so investors can make informed decisions – no matter what that may be.
“Perhaps most surprising was the resilience of investors despite the rising cost of living. This perhaps shows that people are able to focus on the long term despite a year of rising interest rates and inflation. Taking that longer-term view can help investors ride out the wave of market stress.
“When it comes to pensions, despite the benefits of prioritising saving for retirement from an early age, the data shows younger investors are not necessarily taking this path. Whereas it comes as little surprise that people nearing, or at the age of, retirement are still looking to top up the total amount in their pension pot.”
Geopolitical risks ahead
Ian Formigle, chief investing officer at real estate investing platform Crowdstreet, warns of geopolitical risks and election-related uncertainty in 2024 and recommends exploring private lending, preferred equity, and discounted real estate deals as investment options.
“In a world that geopolitical strategies Ian Bremmer, describes as being in a ‘geopolitical recession’, we must remain cognisant that continued global destabilisation, at some point, imposes real consequences on our economic outlook and capital flows.
“Second, we’re entering a presidential election year with growing uncertainty over its potential outcome. The prospect of an election that leads to both candidates claiming victory with the potential chaos that could accompany such an outcome would likely have destabilising effects on the economy and our capital markets.”
“There are multiple ways to approach investing in 2024. First, we are seeing certain private lending opportunities that exist in a high interest rate and illiquid capital markets environment. We view these as a short-term window of opportunity to capitalize upon before it closes during the next growth cycle.
“Another opportunity may be to invest in preferred equity scenarios, particularly where projected returns look similar to traditional equity-level returns.
“Lastly, when evaluating equity opportunities, we are seeking discounts. Real estate prices are resetting from their previous highs and are now beginning to reach levels that look compelling. As a cyclical industry, at some point, the real estate market will begin to recover and cause heavily discounted deals to evaporate.”
Consolidation, fundraising challenges
Louis Carbonnier, president and co-founder of BNPL solutions provider Hokodo, suggests that in 2024, we’re likely to see further consolidation among many of the niche areas within financial technology.
“The cost of living crisis and high interest rates from this year mean that market conditions will continue to be challenging – subsequently, only the strongest and most agile fintech businesses will have what it takes to survive.
On a similar note, fundraising will be just as tough as – if not tougher than – it has been during 2023. After a few years of buoyancy and lots of venture capital activity, we’ve seen investors really reigning it in, which resulted in a year-on-year decline of 33 per cent in the number of closed funding rounds in the first half of the year.
“Fintechs raising funds in 2024 are going to have a difficult time – in fact, if they can’t show evidence of profitability, they might not be able to find investment at all.”
Fintech funding rebound
In 2023, there was a decline in fintech funding, but established entrepreneurs with successful concepts still managed to secure funding, explains Martin Cook, partner and head of fintech at UK law firm Burges Salmon.
He said: “There was a well-documented drop in fintech funding in 2023 compared to previous years – although proven entrepreneurs and winning ideas still secured funding – but VCs are holding on to a lot of cash to deploy and they will need to start to do that in the coming period.
“Assets are looking cheaper as a result, and so the consolidation trend will continue and funding will make its come back.
“We’ve been really busy in the investment and wealth management platform space; and we expect wealthtech to go from strength to strength in 2024.”
In 2022, fintechs accounted for five per cent of the global banking sector’s net revenue, and while that figure is expected to grow exponentially, all signs indicate that incumbent legacy institutions will remain dominant in the market.
Rodolphe Ardant, CEO and founder at spend management platform Spendesk, says: “Today’s tough economy is sorting the strong business models from weaker ones. For example, we’re seeing B2B models holding up much better than B2C, due to the year-on-year rise in demand for fintech solutions and the unstable nature of consumer spending.
“Not all fintechs are being hit equally hard during this period of market correction. Different verticals and those at different stages of growth are demonstrating contrasting levels of resilience. The companies with long-term business plans are still pulling in investment.
“In the next 12 months, there will be a major shift towards sustainable growth strategies. With tighter purse strings in a cautious market, fintechs and investors are getting serious about making profits for the long term, not just ultra-fast hypergrowth. In an environment where cash is scarcer, greater creativity is required which leads to new innovations.
“In a nutshell, 2024 is the year of acting smart, staying lean, and thinking long term. Success for fintechs will be less about the flash and more about the fundamentals — real performance will be king.”