By Gloria Methri
After enduring a significant drop in investment over the past few years, the FinTech industry is brimming with optimism for a rebound. According to survey findings by Silverflow, an overwhelming 91% of FinTech leaders express strong confidence in a resurgence of investments in the coming year.
FinTech investment witnessed an explosive rise in the late 2010s, skyrocketing from $70 billion in 2017 to $148 billion in 2018. It peaked at a staggering $225 billion in 2021, following a dip during the pandemic. However, this momentum faltered in 2023, with investments plummeting by 42% to $113 billion.
The primary culprit? A hike in interest rates, signalling the end of the ‘cheap money’ era and tightening the purse strings across the start-up ecosystem. Although interest rates are still high, the FinTech sector appears poised for a turnaround, buoyed by a renewed sense of optimism and a belief in its potential to navigate the current economic climate.
Robert Kraal, Co-founder and CBDO of Silverflow said, “This seems to be because investors are adjusting their strategy from investing in large numbers of companies in the hope or expectation that some will become ‘unicorns’ to finding a smaller number of companies who are likely to turn a sustainable profit rather than chase infinite growth.”
He added, “This was our experience at Silverflow when we secured €15 million investment in 2023 at the height of the FinTech downturn. This came from the strength of our solution, overall proposition and the experience of our management team. Our investors saw the value we provide to our customers and how we continue to operate as a profitable business.”
AI: The key trend but not the full story
The survey findings also reported that AI, Instant Payments, and Open Banking are the biggest payment trends for the next 12 months. The first trend is easy to predict. AI has been a major story in the press for over a year now, largely because of the growth of OpenAI’s ChatGPT generative AI product. A recent report by Goldman Sachs cast doubt on whether this technology had the transformative potential that its evangelists suggest.
However, Silverflow’s co-founder and CEO, Anne Willem de Vries, said, “In the FinTech space, not only has AI and machine learning been used for decades, but it also has important applications in optimisation and anti-fraud operations. This is particularly true in the payments space, in which machine learning is used to identify fraudulent behaviour. For instant payments this becomes even more important as there is no possibility to correct the transaction after the fact.”
Costs dominate the payment processing challenges
The findings also explored the challenges that companies face, and the results were unambiguous: high fees and associated costs are far and away the most common problem that companies face in the payments space, with 39% of respondents citing it.
Nearly 40% of FinTech leaders confirmed that costs are a major challenge for payment processing. Lack of data and poor customer experience was relatively close, with 26% of the vote each, and other factors like difficulty to use and a lack of functionality came in far behind.
Kraal said, “The survey results show an industry that has taken some blows but is far from out. Companies that solve real problems and do so in a profitable way are going to come to the fore, and it looks like the industry is recognizing that. The near future should be full of some very exciting companies, some of whom we have met, and we would like to count ourselves among their number.”
The survey was completed at Money 20/20 Europe in Amsterdam, The Netherlands, in June 2024. Respondents included market-leading companies such as Visa, Mastercard, American Express, Adyen, Worldpay, Barclays, and Lloyds Bank Group, as well as numerous smaller start-up and scale-up companies, which showed incredible optimism about the industry’s future.