Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Research
M&A Opportunity as Fintech Valuations Drop
Report | Nov 25, 2024
Image: Freepik/wirestock
Falling Fintech Valuations Create Opportunities for Strategic Growth
According to CB Insight's 2025 Tech Trends Report, valuations for VC backed financial technology companies have declined from a median of $1.7 million (2021) to 1.3 million (2024) per employee. While this may seem like bad news and it definitely signals a market correction that may shake up industry, the report which is 93 page PDF of conversations with executives shows a silver lining in how current conditions are ripe for strategic growth and innovation.
3 Reasons Why Fintech Valuations Are Falling
1. Economic Factors - In a higher interest rate scenario, investors focus on companies with clear paths to profitability. Inflation is driving up operating costs and is squeezing margins for many fintech startups. Global fintech funding fell a whopping 37% from 2021 to 2024 with early stage funding shrinking even faster.
See: nesto Acquires CMLS Group, Katipults to Forefront of Canadian Mortgage Lending
2. Market Saturation - Since 2015 when there was a surge in fintech startups, there's been steady and intense competition in fintech markets. According to the report, many if not most fintechs struggle to stand out, and the market can simply not sustain so many players.
3. IPO Delays - While there's a broader trend towards fewer IPOs and companies remaining private for longer. Fintechs looking for a public IPO has been volatile, such as Robinhood who went public in April 2021 at a $32 billion valuation but lost more than 75% of its value by late 2022 due to regulatory scrutiny, lower trading volumes and a change in the retail boom. As a result, many later stage startups and scale-ups held off IPO plans and opted for private funding (often at reduced valuations).
Select Data Highlights
There are over 120 fintech companies with strong health scores (600+ on CB Insight's Mosaic metric) but who are limited on cash are prime acquisition targets. These companies show a 30%+ probability of being acquired within the next two years.
Many fintech startups have not raised funds in the past two years so growth is stalling. About 43% of blockchain startups in 2024 are still in validation stages compared to only 19% for AI startups highlighting fintech's slower rate of commercialization/adoption.
See: Robinhood Acquires AI Platform Pluto Capital Inc
Notable acquisition example is payments platform Revel who was acquired by Shift4 at a fraction of its peak valuation. Shift4 projects that the acquisition will add $15 million in EBITDA in 2024 due to synergies.
Another example is Visible Alpha who was acquired by S&P Global to improve its analytics offerings. This M&A deal shows how well capitalized firms can target and scoop up niche fintech innovations.
Strategic Opportunities
1. Strategic Acquisitions -In 2024 fintech M&A transactions spiked with the median deal size increasing 15% year over year (as valuations dropped). So larger firms are buying startups at a discount, who are experiencing a valuation crunch. For example Stripe’s $1.1 billion acquisition of Bridge, a stablecoin crypto payments platform.
2. Focused Mini -Acquisitions - Instead of buying out an entire company, another strategy is to acquire specific assets such as intellectual property, APIs or books of businesses. An example is Financial Information Technologies acquired only iControl Systems USA scan-based trading technology, and not the entire startup. That was the companies fifth mini-tech acquisition since 2019 to enhance its technology without acquiring full companies which come with operational risk or merger costs.
See: Nuvei Shareholders Approve $6.3B Advent International Buyout
3. Partnerships - many companies choose partnerships instead of an outright buyout. For example, TD and SideDrawer partnered in March 2024 to integrate an API-based digital vault platform into its services to enhance TD's customer experience by providing a secure and efficient way to exchange sensitive information.
Takeaway
Compressed valuations aren't the end of fintech innovation. Rather it's an opportunity to build back smarter if possible by focusing on profitability, partnerships, and strategic acquisitions.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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New Cyber Threats Financial Service Firms Need to Know
Cybersecurity | Nov 21, 2024
Image: 2023-2024 Annual Cyber Threat Report (ASD)
Cybersecurity for Fintech Firms is No Longer Optional. What You Need to Know Heading Into 2025
We all knew it was coming but it's finally arrived. Cyber threats, cybersecurity, cyber attacks, scams, deepfakes, risks, rugpulls, ransomeware, social engineering, phishing etc are now considered a business critical priority. Particularly financial service firms who interact with and manage high value and sensitive transactional data. The Australian Signals Directorate recently published its annual 2023-2024 Cyber Threat Report (78 page PDF report) with insights into the evolving cyber threat landscape - what it looks like and how to build business resilience and fortify against it.
Australian Cyber Threat Landscape by the Numbers
Reported Attacks
- Over 87,400 cybercrime reports were filed. That's an average of 1 every 6 minutes.
- The Australian Cyber Security Hotline took 36,700 calls across all industries for a 12% increase.
Financial Impacts
- Average self-reported cost per cybercrime incident:
- Small businesses $49,600 (up 8%)
- Medium businesses $62,800 (down 35%)
- Large businesses $63,600 (down 11%)
- Total losses from business email's that get compromised was over $84 million with the average loss per incident being $55,000.
See: FSB’s Warnings of Hidden Stakes of AI in Finance
Top 3 Types Targeting Businesses
- Email compromise without financial loss 20%
- Online banking fraud 13%
- Business email compromise resulting in financial loss 13%
Ransomware
- 12% of all cybersecurity incidents involved ransomware where attackers control and/or steal data and extort victims for damage.
- Cyber incidents where attackers focus solely on stealing sensitive data from a target without locking down or disrupting the victim's operations is becoming more popular.
AI-Driven Social Engineering
- Attackers use AI to create realistic phishing emails, deepfake videos, and voice simulations to make scams more difficult to detect.
- Vishing (video phishing) attacks are new and effective and have successfully tricked organizations into transferring millions of dollars.
Methods of Attack
- Phishing (23%), software exploiting software/websites/services over the internet (21%), and brute-force attacks (15%) were the top methods used in breaches.
- Government sponsored 'bad actors' are using more advanced technologies including Living Off the Land (LOTL) attacks where attackers use legitimate tools and techniques available within a tech environment to carry out malicious activities with behaviours that appear normal to the system.
Why Fintech Firms Are Prime Targets
- They deal with sensitive information such as financial details, transaction records and personal data that is valuable to cybercriminals.
- In today's complex world of finance, multiple platforms and third party providers can result in a high number of entry points for attackers.
- Finance is quick to adopt new technologies which can be full of security gaps until they are discovered and patched.
- Cyberattacks in finance are serious and can harm a company’s reputation, lead to legal fines and can cause large financial losses.
See: Elon Musk’s X Challenges California’s Deepfake Law
Ways Fintechs Can Take Action
Strengthen Cybersecurity Foundations
- Adopt the Essential Eight Framework
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- Patch and update software regularly
- Use multi-factor authentication (MFA)
- Segment networks into sections to limit or contain breaches
- Security First Design Practices
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- Prioritize cybersecurity during product/service development
- Securely configure all systems and software by default
See: FBI Raids Polymarket CEO’s Home After Election Prediction
Improve Staff Awareness and Knowledge
- Train employees to identify and report phishing and other social engineering attacks
- Organize regular cybersecurity drills to test readiness and reinforce best practices
Protect Key Systems and Data
- Implement network segmentation to isolate sensitive systems
- Use advanced endpoint detection and response (EDR) tools to identify and mitigate threats
- Encrypt sensitive data when it's at rest AND in transit
Harden Authentication Processes
- Use phishing-resistant MFA for all accounts
- Encourage all staff to use password managers to create strong and unique credentials
- Regularly audit and remove inactive user accounts to reduce entry points for attackers
Monitor and Manage Supply Chain Risks
- Perform due diligence and monitor all third-party vendors and service providers
- Regularly assess supply chain vulnerabilities and ensure all partners comply with cybersecurity best practices
See: Key Findings from 2025 Advanced Payments and Fintech Survey
Use AI for Defence
- AI can quickly detect any anomalies in a network's activity and assess potential threats
- AI tools can preemptively identify phishing campaigns and suspicious behaviours
Be Prepared for an Incident and Act Quickly
- Develop a Cybersecurity Incident Response Plan
- Ensure all employees understand their roles in a potential breach scenario
- Conduct routine 'fire drill' tests of the plan to identify weaknesses and build confidence
- Back Up Data Regularly
- Maintain encrypted backups of critical data systems and test recovery processes regularly
- Collaborate and Partner with Threat Intelligence Networks
- Share and receive threat intelligence to stay informed about the latest tactics and vulnerabilities
See: Meta to Appeal €798M EU Fine for Antitrust Violations
Focus on Proactive Measures
- Review and update systems for vulnerabilities continuously
- Regularly simulate attacks, such as penetration testing, to identify weaknesses
Report and Respond
- Encourage timely reporting of suspicious activity to industry cybersecurity bodies or government resources
- Establish clear channels for escalating cybersecurity concerns internally
Cybersecurity is on Fire and Companies Need to Be Prepared
Fintech firms must manage cybersecurity as an ongoing business function instead of thinking about reacting to one-off incident. Threats are becoming more sophisticated and frequent. Companies need to take proactive steps now to protect their operations and data, and maintain the trust of their customers.
Learn more: ASD Annual Cyber Threat Report 2023-2024
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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FSB’s Warnings of Hidden Stakes of AI in Finance
AI Risks | Nov 19, 2024
Image: Financial Stability Implications of Artificial Intelligence (FSB)
Why the FSB’s Warning Matters More Than You Think
For those who think AI is simply automating tasks, in new report published Nov 14, 2024 titled, "The Financial Stability Implications of Artificial Intelligence" (40 page PDF) the Financial Stability Board (FSB) warns think again. AI is fundamentally changing how financial institutions operate, strategize, and compete. In less than two years, Generative AI and innovative large language models like ChatGPT are game changing the space. Banks and financial institutions are already investing in AI technologies or exploring its capabilities for using AI for everything from complex underwriting to optimizing investment allocations and autonomous bots in the agentic web.
See: NIST Insights: GenAI Risk Management Framework
The FSB is warning that these advancements come with deeper and much more significant risks where financial markets would be at the whim of AI systems all reacting in unison given that they are trained on mostly identical data, making the same decisions at lightening speed, all magnifying shock risks that could trigger widespread instability. Let's break it down.
Risk 1: Too Much Reliance on the Same Players
The report highlights that AI relies on special tech infrastructure such as specialized hardware (i.e., NVIDA chips), cloud services, and pre-trained models that collectively are creating a 'single point of failure' risk. The risk is about third-party dependencies and concentration in the AI supply chain. There are only a limited number of providers and in the event of a key provider facing disruption, it could create a systemic vulnerability that could paralyze global financial operations.
Risk 2: Groupthink on Steroids
As mentioned above, AI models often use the same training data and algorithms which means that many institutions could end up making similar AI-driven decisions under stress. For example, if trading algorithms automatically respond to market drops all in the same fashion, then liquidity could dry up instantly triggering a market meltdown (instead of a routine dip).
See: Canada and Trump Risk Index What Fintechs Need to Know
We've all heard of 'flash crashes' or recent 'run on banks' that are hyper sensitive in the digital age (think pressing a button to get ones money out versus back in the day, lining up at a bank branch to withdrawal funds). Further, mass adoption of AI on a much larger scale could make these event risks more frequent and severe.
Risk 3: The Rise of AI-Powered Fraud
AI technologies are helping both good and bad actors. These days, GenAI can generate realistic fake identities, deepfake videos, and even manipulate sentiment using misinformation campaigns. Imagine a fake video of a CEO announcing a company’s collapse and markets responding negatively before the truth surfaces. Further, a deeper issue of fraud in an AI driven world is that the current fraud detection systems used by governments, central banks, financial institutions, pretty much everyone were not designed to protect against AI smart attacks. And it will take time before these same tools that institutions are using to optimize their operations can also be sophisticated to enough to protect themselves from escalating threats. The 'cat-mouse' game of fraud has always been there but AI risks increasing the gaps in any system.
Risk 4: Misaligned Incentives
Simply put, artificial intelligence tools and the ownership entities behind them can prioritize profit over ethics. One example is an AI bot looking to optimize profit may find it beneficial to spread disinformation to then profit from shorting a stock. While the bot may generate returns in the short term, the long term damage to financial markets and the trust in the systems that manage them could become toxic.
So What Needs to Happen?
There needs to be a mix of better oversight and governance, smarter regulations and more international collaboration. Financial institutions need to rethink how they will adopt and deploy AI by:
See: OECD-FSB Discuss New AI Trends in Finance
- Creating AI solutions by working with a wider range of partners (to mitigate supply chain risk) and develop in-house if possible.
- Building robust security and risk management programs that can withstand disruptions and remain resilient.
- Establishing clear governance practices of how AI systems align with regulations and ethical principles.
Conclusion
The FSB's report is a warning to financial institutions, regulators, and global leaders that they must act now and address vulnerabilities in AI governance, third party dependencies, and security. The stakes are high, and the time to act is now.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Key Findings from 2025 Advanced Payments and Fintech Survey
Fintech and Payments Research Report | Nov 12, 2024
Image: Advanced Payments and Fintech Report 2025 (Edgar, Dunn and Co.)
Insights and Opportunities for Global Payments and Fintech Innovations 2025
Edgar, Dunn & Co. has just dropped the 17th edition of the 2025 Advanced Payments and Fintech Survey (103 page PDF report) digging into the latest innovations and momentum powering the global payments industry forward. The report brings together insights from a 100 senior payment professionals from around the world who explore the influence of emerging technologies like AI, IoT, and blockchain, the rise of digital banking, and the impact of alternative payment methods and Central Bank Digital Currencies (CBDCs).
See: 2024 Global Payments Growth, Trends, and Fintech’s Edge
This post by NCFA Canada highlights the key findings from the payments survey and uncovers the latest data-driven and actionable insights to propel your business forward, providing a strategic roadmap for growth.
Key Findings from the Advanced Payments Survey
The survey was hosted between May and July 2024 with responses from 100 senior payments professionals around the globe.
1. Top Use Cases for AI and Machine Learning in Payments
- 85% of respondents see AI’s primary role in risk management and fraud detection.
- 51% identified customer behavior analytics as a growing application of AI.
- 55% say automating operations for error-free and quicker payments is a priority.
2. B2B Cross-Border Payments in Play
- 52% of respondents said B2B payments are the main focus for cross-border innovations given the demand for efficient and low cost international transactions.
See: AI, Funding Shifts and Regulatory Hurdles in Fintech 2024
3. Sectoral Growth in Digital Payments
- Retail and e-commerce are expected to lead digital payment adoption (65%), with remittances (48%) and travel (46%) also ready for growth.
4. Future Growth in Payment Methods
- Digital wallets (88%) and bank transfers (57%) dominate the future payment landscape, a shift away from traditional credit card payments.
- Buy Now Pay Later (BNPL) solutions are also gaining traction, particularly among younger consumers.
5. Mobile Solutions and Instant Payment Demand
- 68% of respondents expect instant payments to become standard, as consumers demand faster and more convenient transactions.
6. Influence of Regional Trends
- Asia-Pacific leads in expected payment innovations (50%), with Europe following at 23%. Canadian Fintechs can look to these regions for inspiration in mobile and instant payments.
7. IoT’s Role in Enhancing Payments
- IoT devices for payments such as wearables and connected cars are gaining momentum, particularly in retail and automotive sectors.
8. The Role of Security in Mobile Banking
- 63% of respondents stress the importance of biometric authentication to enhance mobile banking security.
- Real-time payment features are equally critical with 57% saying these as essential for consumer trust.
9. Open Banking and Open Finance as Innovation Catalysts
- According to the majority of responders, Open Banking is remain a major driver for financial innovation that enables third party access to financial data, fuelling the rise of customer-centric financial ecosystems. Open Banking is evolving into wider initiatives like Open Finance and Open Data, creating opportunities to enhance competition and improve customer experiences. (See: OECD 2023: Key Insights on Open Finance Policies | EU: MiCA, DORA, Open Finance Framework, and Digital Euro)
Image: Freepik/rawpixel.com
Strategic Insights from the Report
1. Digital Banks and Profitability
- Digital banks have seen huge growth but most still aren’t profitable (some are).
- Around 85% struggle with high customer acquisition and operating costs.
- Cutting acquisition costs by using AI for targeted marketing can save them up to 25%.
- Automating manual processes can trim costs by 30%.
- If digital banks can get customers to make digital banks their primary accounts it can make a big difference since primary account holders contributing almost 70% more in revenue.
2. AI and Machine Learning in Payments
- AI is transforming payments with powerful tools for fraud detection, personalization, and efficiency.
- Payment processors like Visa analyze millions of transactions per second with AI, catching suspicious activity instantly and reducing fraud-related losses by up to 30%.
- AI automation has been shown to reduce payment processing times by half, saving labour costs.
See: How Real-Time Agentic AI Will Boost Fintechs
- Personalized AI-based customer service is another advantage (becoming a new standard) with approx 45% of consumers now expecting personalized digital experiences whe it comes to their financial services.
3. Blockchain as a Cross-Industry Solution
- Blockchain technology reduces cross-border remittance costs by as much as 60%, thanks to its ability to remove intermediaries and process transactions directly. This savings potential is huge for the $750 billion remittance market.
- Blockchain’s secure, decentralized structure has reduced fraud cases by up to 30% in companies using it.
- Its versatility also extends beyond finance to industries like supply chain management and insurance who use blockchain to ensure transparency and accuracy in their operations. (See: Investing in the Future of AI and Blockchain)
4. IoT Payments Transforming User Experiences
- IoT-enabled payment devices such as wearables or connected cars are set to reach $6 billion in transaction value by 2028 with roughly 20% of consumers adopting these options especially in the retail and automotive sectors. See: Autonomous IoT Transactions and Micropayments
- Visa’s connected car technology allows drivers to pay for fuel directly from their vehicles, while Samsung’s wearable devices make payments as simple as a tap.
- Businesses benefit from real-time data insights that can boost sales by up to 25% through personalized offers and loyalty programs.
5. Alternative Payment Methods (APMs) and Mobile Wallet Growth
- Alternative payment methods, especially mobile wallets are on track to overtake credit cards as the primary payment choice by 2028.
- Mobile wallets already account for nearly 60% of online transactions in Asia, showing their global growth potential. However, the lack of compatibility between wallets (especially cross border) will limit usage until interoperability.
See: The Role of Fintech in the Circular Economy
- It’s estimated that increasing wallet interoperability could boost transaction volumes by around 30% with companies like Apple Pay and Alipay leading the charge in wallet expansion.
6. Central Bank Digital Currencies (CBDCs) in Cross-Border Payments
- Central banks are exploring CBDCs but most retail CBDCs face slow adoption.
- Wholesale CBDCs show promise in reducing cross-border transaction costs by 50% according to central bank estimates.
- China has issued over 180 million digital yuan wallets reaching $250 billion in transactions, while the European Central Bank is aiming for a digital euro by 2027.
- These efforts illustrate how countries are exploring CBDCs to make international payments faster and more cost effective.
7. B2B Cross-Border Payments and Fintech’s Role in Efficiency
- Traditional B2B cross-border payments face high costs, delays, and FX fees, often adding up to 8% in extra expenses.
- Fintech solutions are addressing these inefficiencies by cutting out intermediaries and offering better exchange rates.
- Companies like Ripple and Wise save businesses around 20% in transaction fees.
- The B2B cross-border market is projected to reach $56 trillion by 2030, and fintech solutions are essential in making these transactions more efficient and affordable.
8. Open Banking’s Evolution to Open Finance
- Globally, open banking is expected to grow to a $123 billion market by 2031, with platforms like Plaid and Moneyhub demonstrating the potential for open finance to enhance financial services.
- Data from a recent PwC study indicates that 72% of global Fintech investors favor open finance ecosystems due to their potential for customer retention and revenue growth.
See: Canada’s Innovation Paradox – Strong Start, Missing Impact
- Canada lags behind in open banking adoption limiting its fintech sector’s growth as investors are beginning to look outside Canada for open finance opportunities. Embracing open finance could boost competition and consumer choice, opening doors for more innovative financial products.
- 63% of Canadian consumers are interested in services that aggregate their financial data for streamlined financial planning. However, only 15% of Canadian banks currently offer comprehensive data-sharing capabilities.
- The UK has led the way with over 7 million open banking users and a 15% year-over-year growth in payment transactions linked to open finance. Canada’s hesitant rollout could place it at a disadvantage if regulatory and technical hurdles are not addressed quickly.
9. Digital Remittance Transformation
- Digital remittance solutions like Remitly and Xoom have significantly lowered transfer fees from traditional methods 7-10% to around 2-3% rates.
- Digital remittance is growing 10% annually, especially in areas with high migration rates such as Canada, offering an affordable alternative for underserved populations.
- Digital remittance platforms support financial inclusion by reducing fees which enables remittance families to retain more income for daily needs or investment.
10. Financial Inclusion Through Innovative Payment Solutions
- Roughly 24% of the global population is still considered unbanked (typically in emerging markets).
- Mobile money and digital wallet services are addressing this gap.
See: How Fintechs Are Tackling Financial Inclusion in Canada
- Greater financial inclusion through digital payments could add $3.7 trillion to emerging markets’ GDP by 2025.
- Kenya’s M-Pesa service exemplifies how mobile finance can provide essential banking services without traditional banks. Other countries can follow suit by improving digital infrastructure.
11. Insurtech and Embedded Finance Driving Financial Innovation
- Insurtech is growing rapidly with the market expected to hit $152 billion by 2030.
- Advanced data analytics let insurers offer custom policies, adjusting based on real-time user data.
- The offering of financial services by non-financial platforms via embedded finance is helping companies improve user experiences. For example, Shopify’s embedded financing options make it easier for small businesses to access funds directly on its platform with integrated services.
12. Evolving Retail and Gig Economy Payment Models
- Personalizing retail experiences increases purchase likelihood by about 40%, making social commerce and omnichannel strategies more essential.
- Gig economy workers and small businesses want real time payments. Half of gig workers prefer platforms offering instant payouts.
- Real-time payments also reduce administrative work for platforms so transactions run more smoothly and offer a better user experience.
13. The Resilience and Decline of Cash Usage
- Cash is losing ground worldwide as digital payments rise with some countries seeing cash used in less than 5% of transactions.
- Having said that, cash still plays a key role in areas with limited digital access or where people have less trust in banking institutions.
- While cash usage may continue declining, local economies and infrastructure gaps mean it won’t disappear anytime soon.
Closing Thoughts
The convergence of emerging technologies and their adoption globally reveal major shifts in global payments representing significant opportunities for fintechs as AI, IoT, blockchain, digital banking, open and embedded finance broaden access to financial services, making corss-border transactions faster and easier than ever before.
See: Industry Reports and Research
For fintech founders and investors, the survey uncovers prime areas for growth. Companies need to prepare for a more connected financial ecosystem and high bar for speed and inclusiveness to meet today's demand. Integrating these technologies and tools is about building a future of finance that's user-friendly, secure, and accessible.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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AI, Funding Shifts and Regulatory Hurdles in Fintech 2024
Fintech Report | Nov 11, 2024
Image: Fintech's Vertical Integration Into Banks (SVB 2024 Future of Fintech report)
5 Takeways from Silicon Valley Bank's Future of Fintech 2024 Report
Fintech never sleeps. It's been constantly evolving since NCFA Canada launched over a decade ago. Last month, Silicon Valley Bank dropped a 24 page data filled PDF report with a comprehensive outlook of the latest drivers of change in "Future of Fintech 2024". As regulatory pressure increases combined with a tougher funding environment and game-changer AI on the rise, fintech firms have both new obstacles and also fresh opportunities. This article looks at the top 10 insights that capture how the fintech industry is changing so that fintechs and investors can adapt accordingly.
1. Generative AI is Reshaping Fintech
- The report shows that AI focused fintech companies that raised approx. $3.6 billion in 2020 have now reached a total value of over $9 billion, showing that they've gained a lot of investors and their trust.
- AI is seen as a big shift in finance for a range of sectors, especially for portfolio management and market analysis given that AI tools can churn through real time data and make personalized recommendations or execute logic on behalf of users.
See: Some Exciting Fintech Stats (2023-2025)
- Klarna’s chatbot has massively improved customer support, slashing response times to just 2 minutes down from 11 minutes, replacing work done by hundreds of people.
- Mentions of AI in earnings calls have increased by 400% since 2021.
- AI is now actively being used for compliance, claims handling, and customer support, and is helping lower costs and streamline administrative regulatory tasks.
2. Increasing Regulatory Pressure on Fintech
- The FDIC has started cracking down more, primarily aimed at fintech-bank partnerships.
- Although these partner banks only make up a small part of the U.S. banking ecosystem, they account for over 10% of serious regulatory enforcement actions issued by regulators. Confirming that regulators are in deed keeping an eye on these partnerships and on a short rope.
- September 17, 2024 the FDIC suggested that banks and their fintech partners should keep more detailed records and set stricter standards for compliance.
3. Funding, Valuation Pressures, Increasing Costs, Exits, M&A
- According to the SVB report, VC fintech funding declined 91% since peaking in 2021. Only $5 billion was raised this year as of September 2024. For more insights see CB Insights Q2 global fintech funding report including some data on Canada.
- Series B and C investments are also bottoming out which are near decade lows (and need for more realistic fintech valuations).
- Larger deals above $200 million are becoming rare and now represent only 28% of investments (down from nearly half of all deals in the peak of 2021).
- More challenging now to move from Seed to Series A funding. The report highlights that only a few fintechs that started in 2022 or 2023 have successfully made the transition from seed to Series A funding. That's quite a drop given that only a few years ago about 20% of fintech firms successfully jumped the chasm.
- More startups are going for repeat seed rounds as it's more difficult to secure Series A. The difference in value between seed and Series A rounds is shrinking, making Series A investments appear like a better balance between risk and reward. Series A is seen as a safer option now, with adjusted valuations making it a more attractive funding round in a tough market.
See: European Fintech 2024: Profits Rise, Unicorns Fade
- th the fixed and variable costs involved of acquiring new customers has almost doubled. This adds more burden on companies as interest rates have also increased putting pressure on profits. As rates start to decline (hopefully) it will provide some relief to firms.
- The cash reserves of American tech unicorns shows a median runway of 20 months in 2024. This is a much shorter runway that past years where firms had access to cheaper funding conditions and less pressure on cash flow.
- Strategic partnerships like eBay and Venmo's collaboration are becoming more common as companies look for partnerships that can help reduce high costs of operating on their own.
- The exit rate per 10 late-stage deals has fallen from 3.9 in 2021 to 2.7 in 2024 (read: tougher exit market).
- IPOs and public exits are rare. Only 15% of M&A deals are disclosing terms which means it's a buyer’s market where valuations typically favour the buyers.
4. Growth in Embedded Finance and Payment Innovations
- Payment-tech now represents more than half of the fintech sector's valuation and is a huge part of the fintech unicorn scene.
- Major banks spent about $161 billion in acquisitions since 2020, choosing to buy fintech capabilities instead of building them internally from the ground up.
- Partnerships are growing like Wells Fargo and Bilt Rewards, but profitability is tough due to higher customer acquisition costs.
5. Focus on Efficiency and Reducing Burn Rates
- About 80% of fintechs saw improvements in EBITDA margins over last year. Top companies lowered their burn rates by half since 2022.
- Almost a third of U.S. fintechs have only 6-12 months of runway cash (up from 20% last year), showing the importance of sustainable growth strategies.
- Smaller fintechs with under $10 million in revenue show a median cash runway of just 10 months. They are looking for faster paths to profitability.
Closing Outlook
With tougher funding conditions, heightened regulatory scrutiny, and rising costs, fintech firms are focusing on partnerships and innovation to drive growth.
See: Investing in the Future of AI and Blockchain
AI is already a powerful and widely used tool, helping companies streamline, cut costs and integrate fintech deeper into traditional banking. the current environment calls for a lean approach while aiming for sustainable growth and profitability.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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EU Court of Auditors Finds AI Investment Challenges
AI | Nov 5, 2024
Image: Court of Auditors Report (VC Investment in AI)
EU AI Investment Shortfalls Highlight Need for Urgent Action
The European Union (EU) wants to be a leader in artificial intelligence (AI) but a recent review by the EU Court of Auditors (68 page PDF report) found big challenges including low investment, varied progress between countries, and delays in helping small businesses are slowing things down. Here’s a quick look at what's happening with AI in the EU:
- By 2022, the EU's investment into AI was €20 billion compared with the United State's $50 billion investment to date. The report shows a big gap that needs to be addressed if the EU wants to keep pace. EU venture capital investments in AI are only about a third of those in the US and less than half of China’s.
See: ESMA Releases Statement on AI in Retail Investment Services
- While it can be expected to some degree, there's an uneven progress in AI between countries. Some countries are doing well leading AI investments such as France (investing €3 billion) and Germany (€5 billion) but others like Bulgaria, Croatia, Greece, and Romania don't yet have clear AI plans leading to inconsistencies across the EU.
- Although there's a formal budget of €1.5 billion for Testing and Experimentation Facilities only €110.8 million has been committed so far. This delayed funding is an important resource that's constrained for small businesses, so many European Digital Innovation Hubs that were planned are not fully up and running.
What's Causing the Challenges and Auditor Recommendations
Well the auditor pointed out a few reasons. First, the investment goals for AI weren’t clear or updated making it hard to track progress and accountability. Second, weak coordination between the EU Commission and member countries leading to fragmented efforts. Some countries still did not have a proper AI strategy as recent as 2023. Lastly, delays in building the required infrastructure (especially for small businesses) held things back further.
- The EU needs to create clear and specific targets for AI investment and follow-up with annual benchmarking to track progress and hold everyone accountable and committed to the AI strategy.
See: EU Grants Final Approval of AI Act, Effective 2026
- Better coordination is needed between the EU Commission and members so that all countries have solid AI plans and work together effectively.
- More funding support and faster deployment to get resources, programs, and hubs fully mobilized.
Outlook
As massive corporations and governments around the world invest heavily in AI, the EU must quickly work to close the investment gap to boost innovation and positioning itself as a global AI leader.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Canada’s SMBs Deserve Better Banking. Lessons from US Fintechs
SMB Banking | Nov 4, 2024
Image: Freepik/wavebreakmedia micro
Survey Reveals Need for Flexible Banking Solutions to Support Canadian SMBs
Canada’s small and medium-sized businesses (SMBs) are a backbone of the economy. Canada ISED publication shows that small businesses (<500 employees) employed 52.12% of the work force creating 9.29 million jobs in the country. Even the smallest businesses with <100 employees hire 38.71% of all employed. These businesses nurture innovation, create jobs and growth, and strengthen communities but a recent survey of 700 Canadian SMBs by Canadian fintech, Float, highlights that high expenses and fees, tough access to credit, and outdated financial systems make it very challenging for SMBs to be productive and thrive.
Simply put, many of these businesses aren’t getting the support they need from traditional banks because Canada's financial system isn't designed for SMBs. Instead, it’s set up to support big banks and large corporations that have steady cash flows, solid credit histories, and plenty of resources. Traditional banking products work well for these bigger players because they focus on stability, low risk, and lengthy, careful approval processes.
Snapshot of SMB Challenges from Survey Responses
While it's not meant to be easy running a small business, below are select data points based on survey responses that point to the lack of financial infrastructure challenges for SMBs specifically.
See: Open Banking: Revolutionizing Financial Data Sharing
1. Financial Barriers (many SMBs experience serious financial obstacles)
- Approx 40% of business owners report that rising operating costs are their biggest concern, making it difficult to manage expenses and maintain profitability.
- Almost 30% of SMBs struggle to secure loans or credit due to strict lending requirements from banks. This lack of access limits their ability manage cash flows or invest in growth.
- Many participants are concerned that increasing interest rates and fees are making borrowing more expensive, which adds to the financial strain.
2. Inefficient Processes
- Many SMB owners report spending up to 40 hours a month managing payments and handling paperwork, diverting their attention from growing their businesses.
- More than half of SMBs feel that traditional banks do not understand their business or its unique needs. They express dissatisfaction with an outdated banking system:
- Inadequate customer service
- Low yields on cash balances
- Unsatisfactory interest rates on business savings accounts
- Lack of attractive cashback or rewards programs
Image: Float Financial (SMB Survey Results)
U.S. Banking Products that Canada Could Adopt to Better Serve SMBs
Given that Canadian SMBs feel underserved and supported. Let's take a closer look at just a few popular products available in the US and how similar solutions could benefit Canadian SMBs, assuming banks or fintechs could step in/up with similar support.
See: The Case for Better Banking Options for Canadian SMEs
1. Revenue-based financing (RBF) is a flexible funding model available to SMBs in the U.S. that allows them to repay loans as a percentage of their future revenue. This approach is a great fit for early-stage companies with variable cash flow since it matches and scales repayments with revenue generated. Canadian fintech, Clearbanc (now Clearco), originally popularized RBF in both Canada and the U.S.. Canadian banks largely offer traditional standard loans with fixed repayments making it more difficult for SMBs to manage cash flow during slower months.
2. Business Credit Cards Without Personal Guarantees Companies like Brex and Divvy in the U.S. provide business credit cards that don’t require a personal guarantee or personal credit check, therefore helping entrepreneurs build business credit independently of their personal credit. These business cards often include expense management software and other credit building tools. Most Canadian banks still require a personal guarantee on business credit cards which can deter new business owners or hurt those with limited personal credit history.
3. Invoice Factoring allows businesses to receive early payment on outstanding invoices to be collected which is incredibly useful for managing cash flow without accumulating debt. Fundbox provides this for SMBs in the U.S.. In Canada, there are a number of fintechs offering invoice factoring services like FundThrough but traditional banks don't generally provide this option leaving SMBs with limited cash flow solutions other than debt.
See: The Role of Digital Banking in Supporting SMEs and Startups
4. Quick Access to Capital can help SMB capital solutions when they need it most. In the U.S. digital lenders such as BlueVine offer quick access to business lines of credit by using real time bank transaction data instead of traditional credit scores or collateral. While in Canada, banks typically have longer approval processes making it more difficult for SMBs to access cash quickly.
Looking Ahead
It’s time for Canada’s financial institutions and policymakers to move faster on Open Banking in Canada and other policies to provide better financial infrastructure for small businesses, or risk further decline in productivity.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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