Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Fintech Canada Directory
Is the BRICS Alternative Currency Plan Falling Apart?
BRICS | Dec 3, 2024
Image: Freepik/ibrandify
BRICS Nations Weigh Gains and Risks as New Currency Idea Faces Challenges
The original BRICS member nations including Brazil, Russia, India, China, and South Africa previously announced their bold vision to challenge the dominance of the U.S. dollar by creating a shared currency. The plan hatched and promised an alternative currency and payment system that would be free from the influence of U.S. sanctions and monetary policy.
See: Central Banks Favour USD and Gold Amidst De-dollarization
Lord Lamont of Lerwick stated:
"If it ever happened, it would be a major threat to the Western-led financial system, but above all it would make it impossible for the West to impose sanctions on countries like Russia, China or Iran or other malign countries."
But is the dream now unravelling?
Trump Threatens 100% Tariffs
Just a few days ago, U.S. President-elect Donald Trump announced that American wasn't going to sit by idly while BRICS trading bloc tries to circumvent the U.S. dollar and threatened to implement a 100% tariff on BRICS nations if they launch an alternative currency. He also demanded commitment from these countries that that would and abandon any de-dollarization efforts.
The idea that the BRICS Countries are trying to move away from the Dollar while we stand by and watch is OVER. We require a commitment from these Countries that they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar or, they…
— Donald J. Trump (@realDonaldTrump) November 30, 2024
Growing Divide Among BRICS Members
Russia isn’t backing down arguing that Trump's threats could backfire by pushing even more countries to consider alternatives other than the dollar.
See: Credit Suisse: Statecraft and De-dollarization
Dmitry Peskov, Kremlin spokesman:
"[The dollar is losing its appeal as a reserve currency for many countries, a trend that is gathering pace]. More and more countries are switching to the use of national currencies in their trade and foreign economic activities. If the U.S. uses force, as they say economic force, to compel countries to use the dollar it will further strengthen the trend of switching to national currencies (in international trade)."
Recent reports say that some BRICS members may be stepping back from the initiative due to varying economies and conflicting monetary policies that are anticipated to be difficult to overcome. Each country has unique economic needs so a one size fits all approach to a currency solution is tricky. For example, China is an economic powerhouse and may prioritize its own currency at the expense of smaller nations.
What Does Each BRICS Nation Stand to Gain?
Is it a zero sum game with a clear winner and loser?
China is best positioned to benefit if a BRICS currency takes off. They are the largest economy in the BRICS trading bloc and Beijing could use the initiative as a stepping stone to boost the yuan's role in global trade. China is strategically looking to increase its global influence so its beyond just economics. Critics are concerned that such dominance by China would come at the expense of smaller BRICS members.
See: SWIFT Launching CBDC Solution Within 2 Years (to Compete with BRICS)
Russia, currently at war with the Ukraine and constantly at loggerheads with the U.S. has a lot riding on the idea of an alternative BRICS currency. Russia is currently facing a litany of sanctions and economic isolation so an alternative to the U.S. dollar could help stabilize Russia's economy and offer it a better hand on the geopolitical global stage. Conversely, a failed BRICS currency could force Russia into a rock and a hard place.
India is being more cautious as it understands that while a BRICS currency may make trading easier within a bloc, it could give China more control. India has its own massively growing economy and aspirations so it's walking a fine line that balances cooperation while protecting its independence.
For Brazil and South Africa the risks are high with smaller rewards since their economies are much smaller and they may struggle to stay competitive in a system dominated by China and Russia. So while they may be benefits for a larger block, their smaller interests could easily get pushed to the side so the benefits aren't as clear nor are they guaranteed. Having said that Brazil has been a strong advocate for a BRICS currency system over the dollar.
Global Financial Shift in the Making
While the U.S. dollar is still dominant, cracks are appearing as some countries are seeking alternatives to U.S. economic sanctions or geopolitical strategies. Since trading nations are deeply integrated and affect global markets, any significant changes to currency dynamics could have serious global impact. It could appear as shifting exchanges rates, new supply chains / trade flows and different financial alliances.
See: Tax-Free Bitcoin Zone Proposed by the USABTC
Companies and policymakers need to remain agile. Even if the BRICS currency initiative fails, its a movement that gained momentum and certainly a trend that the world cannot ignore.
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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Overcoming Barriers to Growth in Financial Regulation
Regulation | Dec 2, 2024
Image: Freepik/storyset
Roadmap for Agile and Innovative Regulators
As new technologies and innovation continually change industries, regulators themselves must adapt or risk falling behind. Without innovating, regulators may inadvertently stifle economic growth and expose markets to new threats, so embracing change should be accepted as a way to keep the system resilient. In a recent Linkedin article called 'Mandate to Innovate, Stephen Scott CEO Starling shared some insights on how regulators can build trust and inspire innovation, and rethink how regulations can support growth, competitiveness, and stability.
Breaking Barriers and Embracing Innovation
Regulators need to change how they approach new technologies like blockchain, artificial intelligence (AI), or decentralized finance (DeFi). Rather than being skeptical and cautious, they should adopt a mindset that welcomes experimentation even if some risks are involved. Shifting risk-adverse cultural attitudes is key to fostering innovation. The UK Science Secretary, for example, setup a Regulatory Innovation Office to speed up approvals and cut unnecessary bureaucracy to help companies and public agencies innovate more easily.
Regulators need to support growth and innovation without compromising financial stability. This means they need to adopt new tools and frameworks that are suitable for emerging technologies like AI, and invest in RegTech and SupTech to improve supervisory capabilities and decision-making. The European Central Bank's (ECB) 2024-2028 tech strategy is about investing in both people and technology to provide supervisors with the right tools and skills (training) and to upgrade its IT systems to meet future demands.
See: Balancing Fintech Innovation and Regulation
This is all part of the ECBs SSM Digitalisation Blueprint launched by the supervisory board in 2020 to (a) build innovative tools and systems, (b) develop a common IT landscape, (c) foster 'digital culture', (d) run an advanced 'innovation model' at the SSM, and (e) support innovation in the wider ecosystem of the private sector, academia and other authorities. It's the ECBs commitment to using advanced supervisory technology to streamline processes and modernize. Also, initiatives like the FUTURES Act in the U.S. are advocating for regular reviews of supervisory tools to ensure they are up to date, adaptable, and support effective oversight.
Another effective way to drive innovation is by creating spaces where it can thrive such as innovation offices and regulatory sandboxes where financial products and services can be safely tested before they are fully implemented. American is moving in this direction with the proposed Financial Services Innovation Act of 2024, which would establish specialized offices and sandboxes within federal financial regulators.
Accept failure as a valuable learning tool instead of viewing it negatively. The OECD clearly sees it better for regulators to see failure as a step towards success ('Learn to fail, not fail to learn'). A failed experiment can result in smarter policies in the long run, often preventing bigger mistakes in the future.
Collaboration is just as important. Regulators should work closely with financial institutions and other stakeholders to share insights and develop best practices. For example the UK Prudential Regulation Authority (PRA) recently held a pilot roundtable with banks, insurers, and other experts to explore how regulation can safely enable innovation.
Agile Regulator Scorecard
How well do you think your regulators would score? 10 point scale with 1 (lowest) and 10 (highest)
- Overcoming Cultural Barriers
- Balancing Innovation with Stability
- Setting up Innovation Offices and Sandboxes
- Investing in Regtech and Suptech
- Promoting Collaboration and Learning
- Allowing Failure
- Updating Internal Systems and Mindsets
Final Thoughts
To truly embrace innovation, regulatory leaders must set the tone by creating an environment where trying new things is encouraged and not feared. Regulators need the right tools and training to keep up with new technologies and changing markets.
See: Innovative Approaches to Smarter Regulation
Outdated systems won't cut it any longer. Regulators need to invest in a modern tech stack and build agile and skilled teams. Finally, collaboration and bold thinking are keys to unlocking growth. With the right approach, regulators can drive growth while balancing stability.
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 Sues Google Over Anti-Competitive Ad Practices
Competition | Nov 28, 2024
AI Image
Canada's Competition Bureau Sues Google for Anti-Competitive Practices in Online Advertising
The US, UK, and EU are finally getting tougher on Google's search monopoly, and the Competition Bureau of Canada is now suing Google) too for anti-competitive behaviour that unfairly blocks competition and maintains control over core tools used by advertisers and publishers. The Bureau says Google's unfair practices costs advertisers and publishers which hinder the Canadian economy and restrict innovation.
What’s Google Being Accused Of?
The area of focus in this case is Google's advertising tech stack which is a series of tools that connects buyers and sellers of advertisements that Google controls to dominate the the sector. Google allegedly forces businesses to use its tools by making them work better with Google Search than any other competitor's tools.
See: DOJ Wants to Break Up Google’s Search Monopoly
They also prioritize its own products in ad space auctions, and restrict publishers from working freely with other platforms, limiting the competition while boosting their control. At the end of the day, anti-competitive practice forces advertisers to pay higher costs which are passed onto consumers who pay higher prices, hurting Canadian businesses and consumers.
What's Next?
The Bureau has taken the case to the Competition Tribunal and is asking them to force Google to sell parts of its advertising tech business to create a more open market. They also are asking Google to stop these anti-competitive practices and pay financial penalties to ensure compliance with Canadian competition laws. Google of course disagrees and plans to defend itself in court, saying there's a lot of competition in online advertising and that businesses have many options.
Outlook
This is a big case for Canada who has increased efforts to address monopolistic practices in the digital economy.
See: Competition Act Amendments and What It Means for Fintech
If the Competition Bureau, it will impact how Google operates its ad tech business in Canada hopefully lowering costs for advertisers while increasing revenue for publishers, and spur more innovation and competition in the market. Does this case smell similar to the Canadian banks and the need to strengthen competition in the financial sector?
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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Can Cloned Voices Crack Bank Security? Need to Know
AI | Nov 28, 2024
Image: Freepik
AI Voice Cloning Exposes Weakness in Bank Security Systems
Well there's not a day that goes by that artificial intelligence (AI) doesn't amaze while also inflicting fear. AI's latest milestone is unsettling, as its been proven that it can clone human voices so convincingly that even bank's advanced security systems can be tricked. This article is based on an investigative piece by Shari Vahl at the BBC who proved that a clone of her voice breached two major bank's voice ID systems. The security and fraud implications raise the frightening truth that current authentication protections are not good enough in the era of generative AI.
What Happened?
Today, voice cloning believe it or not is pretty straightforward. There are a growing number of voice cloning services that varying features and capabilities such as ElevenLabs, Resemble AI, and Respeecher. Descript compares a few of the pros and cons of the best AI voice cloning tools here.
See: Generative AI and Major Human Rights Fintech Risks
So Vahl cloned her voice and tested it on the 'voice ID' systems of Santander and Halifax banks. Both systems use a simple phase to authenticate voice ID, "my voice is my password' and grant full access to bank accounts and tools. Here's how the conversation went.
Image: Shari Vahl Voice ID authentication with Voice Clone at Santander bank
See: How GenAI Is Transforming Risk and Compliance in Banking
Yes, as you see from the conversation above, using her cloned voice she successfully passed Voice ID and logged into her account, using basic speaker equipment at home. She duplicated the same process at Halifax Bank with the same result so she was two for two in hacking into her own bank account with a cloned voice ID.
Many companies such as Rogers say that Voice ID or Voice biometrics is more secure than traditional PINs or passwords but if a cybercriminal can easily pass (or by-pass) a voice ID system using a cloned voice easily, to access sensitive information or drain bank accounts, we've got a serious problem.
How Are the Banks Responding?
Santander and Halifax both defended their systems saying that voice ID is just one layer of their security framework. Here's how they responded according to the BBC article.
Halifax Bank response:
"[Voice ID is an] optional security measure. We are confident that it offers a higher level of security compared to traditional knowledge-based authentication methods, and that our layered approach to security and fraud prevention provides the right level of protection for customers' accounts, while still making them easy to access when needed."
See: Meta Files New Patent: Voice ID Data for User Authentication…Progress or Privacy Concern?
Santander Bank response:
"We have not seen any fraud as a result of the use of voice ID and are confident that it provides greater levels of security than traditional knowledge-based authentication methods. [Voice ID] is one element of our stringent approach to customer security and fraud prevention, with a range of comprehensive checks based on the nature of the customer's request. We constantly review, test and enhance our systems in response to increasingly sophisticated tactics used by fraudsters."
What Can Be Done?
- Banks and businesses should add extra layers of security like combining voice ID with fingerprints or a trusted device before providing access to make accounts safer.
- Use AI tools to catch itself. AI can be trained to catch cloned voices (much better than humans can) to help combat the wrongly use of this technology.
- Education and awareness. Customers need to know how scammers can use AI against them so they can proactively protect themselves. Awareness is a big step in avoiding fraud. Banks should advise customers on what they’re doing to protect against scams using AI.
- Governments, banks, and regulators should work together to create guidelines for safe use of AI powered voice tech and invest in top notch tools to catch fraud early.
Wake Up Call
Banks, government, regulators, businesses, and customers all need to wake-up and take the appropriate actions to protect themselves.
See: Major Data Breach @Finastra and Canadian Banks?
While AI is a marvel technology, it's creating new risks that demand smarter protections for all. Similar to the old saying "buyer beware", we now live in an age of "user beware." Stay informed. Stay safe.
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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Meme Coin Chaos and Wild West of Viral Tokens
Crypto | Nov 26, 2024
Image: Jut a chill guy, Phillips Banks
Meme Coins, Lawsuits, and the Intersection of Tech, Culture & Finance?
Imagine logging onto social media and seeing your favourite viral meme like a cute pet or a celebrity's name turned into a cryptocurrency. At first it might feel like a quirky corner of internet culture but beneath the surface of the world of meme coins is arguably a ticking ticking time bomb with a growing number of legal disputes, ethical dramas, and financial volatility. Welcome to the latest iteration of the wild west of crypto.
What Are Meme Coins, Anyway?
Meme coins are cryptocurrencies that draw their identity from internet jokes or cultural references. Perhaps the most famous meme coin is 'Dogecoin'. What started off as a joke ended up making headlines with soaring market caps and high profile endorsements like Elon Musk. Meme coins thrive on social media hype but their value is driven by speculation rather than solid fundamentals. While that may be part of the fun, it's also where things go wobbly.
When Meme Coins Turn Into Legal Battles and Creators Fight Back
For example, an explosive meme coin called PNUT inspired by Peanut the squirrel (500,000 social media followers) who lived at Mark Longo's animal sanctuary in New York with Fred the raccoon. On Oct 30, state officials raided Longo's home and euthanized both animals due to laws against keeping wildlife as pets. The tragic death went viral and captured global attention during the U.S. presidential election with Elon Musk saying it was 'messed up' and DJ Vance citing 'government overreach'. Well Peanut's owner Mark Longo became furious when he found out that the crypto community had minted a coin based on his pet’s story. He called it exploitation and he fired back by launching his own token, "Justice for Pnut and Fred" and threatened a lawsuit.
See: Lena Dunham’s SBF Film & Finance Pop Culture
In another example, Caitlyn Jenner, an American TV personality and retired Olympic gold medalist launched her own JENNER meme coin and promoted it but it landed her in legal trouble. Investors claimed her endorsement led to massive losses and that the coin was an unregistered security. Sad outcome considering what looked like a quick way to cash in on her celebrity status eventually turned into a courtroom drama.
And then there is the artist behind the viral 'Chill Guy' meme, Phillip Banks, was pissed that his work was used in multiple meme coin projects without his permission. As a result, he's pursuing legal action to reclaim control over his intellectual property which is a good reminder that behind the hype and humour, creators and artists are getting taken advantage of and bearing the brunt of exploitation.
Phillip Banks:
“Chill guy has been copyrighted. Like, legally. I'll be issuing takedowns on for-profit-related things over the next few days.”
Why the Legal Storm?
See: Report Insights: DIY Investors in Canada on the Rise
While meme coins are all the rage because of their ability to capture cultural excitement, their value relies on viral buzz rather than actual utility or tech advancements. So meme coins are like a moth to a flame and their massive rise in popularity has created a perfect storm of legal challenges:
- Meme coins often use viral content without asking permission from the creators. This is intellectual property theft.
- Some meme coins are just 'scams and hype tricks' to get people to buy in, only for their value to crash later or a live rug pull, leaving investors with big losses.
- Authorities like the SEC are cracking down on meme coins that act like unregistered investments.
Closing Thoughts
Meme coin tokens are changing the way we think about value, culture, and technology but they shine a light on the cracks and darker corners of crypto where there's an obvious need for better safeguards, clearer regulations, ethics and accountability, and more informed investing.
See: U.S. Bets Big On Crypto and What It Means for Canada
They are a magnet for both innovation and controversy. Some meme coins will mature into legitimate assets but most will be the digital Wild West of crypto. Stay safe and be aware.
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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Trump’s Tariffs: Impact on Fintech and Canada’s Digital Tax
Taxes | Nov 26, 2024
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Could Cross-border Tax Friction Spill Over Into Digital Services and Fintech?
Yesterday, President-elect Donald Trump announced a 25% tariff to be applied to all of Canada's imports into the U.S., sparking plenty of debate. So far the focus is largely on physical goods like lumber, fuel, aluminum, dairy and food products, and things like cars. But what about fintech services, and more specifically Canada's new Digital Services Tax (DST)? Could they be somehow ensnared with this new tax friction which has already ruffled feathers in Washington (and could become another discussion point for a broader trade dispute?
What’s Going On With Trump’s Tariffs?
During Trump's campaign for re-election into office, he must have mentioned tariffs a thousand times or more. He talked about applying tariffs to every country that he thought had an unfair trading relationship with America including Canada. The Canada and Trump Risk Index ranks Canada in third place behind only Mexico and China in terms of which countries are at the greatest risk of a trade policy change. As of Aug 2024, Canada reported a trade surplus with the U.S. of about $11.5 billion CAD which is the difference between how much Canada exports to the U.S. ($43.7 billion CAD) versus imports from the U.S. ($32.3 billion CAD).
See: Who Will Canada’s New 3% Digital Services Tax Impact?
Trump's tariff trade policy on imports hopes to push countries like Canada to the negotiating table by making their exports to the U.S. more expensive for American consumer buyers driving down demand. When Trump announced a 25% tariff on all Canadian imported goods, he also mentioned the flow of illegal drugs and people coming from Canada into the U.S.. Prior to that, we also all know that Trump is angry that Canada has not followed-up on its commitment to spend 2% of GDP on defence per it's NATO member agreement. So in Trump's mind, cross-border trade needs a new deal with all countries including Canada.
Canada’s Digital Services Tax Complicates
Canada is now rolling out a unilateral 3% DST aimed at large tech companies like google, Amazon, and Facebook who generate more than $20 million CAD in revenue in Canada. The goal is to make these tech giants pay their fair share of taxes and is quite a shift in Canada's approach to taxing digital economies, and has caused a lot of controversy in Canada and aboard.
Not everyone agrees. The U.S. government sees the DST as unfairly targeting American companies. Earlier this year, the U.S. made a formal complaint under the USMCA trade agreement. If those talks fail, the U.S. could retaliate with their own tax which could get tricky for some larger Canadian fintech companies.
Could Fintech Get Caught in the Crossfire?
On the surface it seems fintech is safe given that DST is aimed at tech giants and tariffs traditionally focus on physical goods. But trade disputes have a weird way of escalating and if Trump decides to take a stronger stance on Canadian digital tax policies, fintech firms operating in the U.S. could feel the heat.
See: Canada’s Rising Tax Burden and Fintech Opportunities
Take Nuvei for example, a Montreal payment tech company that processes transactions for U.S. businesses. Nuvei reported a total revenue of $357.6 million in the third quarter of 2024 (17% increase year over year). While the U.S. revenue figures aren't specifically disclosed, Nuvei has significant operations and client base down South, suggesting that its revenue from U.S. markets would likely exceed $20 million annually. Or take Wealthsimple who recently expanded into the U.S. and services clients investment tools through its digital platform.
Both companies rely on trouble free cross-border operations to thrive. If the U.S. (or Canada) introduces new restrictions or taxes on digital services, it could make operating harder and more expensive.
Why It Matters
Being a neighbour to one of the most lucrative markets in the world has been a big part of Canada's success. But trade tensions can rise and fintech companies need to keep a close watch on trade developments (i.e., tariffs, DST etc) between the U.S. and Canada, and be prepared for new challenges and opportunities that may arise.
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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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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