Earlier this month, the payments world met in Amsterdam, the Netherlands, for Money20/20 Europe, one of the biggest events on the industry’s international calendar. But while the conference had the usual strong attendance, it had a far more muted tone than in previous years that reflects shifting trends within the payments industry as a whole.
While in previous years the event was characterized by expensive, attention-grabbing stands and packed audiences for talks about the latest focus of industry hype, this year was different. The stands were more pared-down, with some types of players absent, and the talks were less busy.
However, the Connections Lounge, where attendees conduct meetings, was constantly full. This was a conference where attendees had come to do business, take focused meetings and achieve targeted, specific goals, and it reflects a wider mood in the industry.
Payments is at a stage where people are ensuring that they build their businesses efficiently and profitably, rather than trying to launch multiple new products and only deliver growth for growth’s sake. In a landscape of high inflation, tightening consumer spending power and changing regulations, that is a healthy sign.
Now the dust has settled on Money20/20 Europe, here are some of the main takeaways about how the payments industry is operating in 2023.
Payments businesses are responding to tougher market conditions
The easy-to-raise, high-value venture capital and growth equity that was commonplace a few years ago has dried up, and businesses are looking to grow in a way that’s financially sustainable. This is also incentivized by changing requirements from the investors who are left – although there were notably fewer at the event than we’ve seen in previous years. To raise any money now, you need to show that your business is sustainable; for core payments companies that also puts aside hype-led topics that may have previously been used to lure investors.
Meanwhile, the high stock market-led valuations that peaked in late 2021 and early 2022 have also dropped, and while some of the stock market has returned, it has yet to fully recover. This has resulted in companies seeing valuations below what they once were. Some have responded by operating leanly and holding off on additional fundraising, but funding rounds have still been necessary for others, which means they have had to raise money at lower valuations.
Macro trends are also creating challenges for payments, particularly on the cross-border side. High inflation, the Ukraine-Russia war and tensions between the US and China are all making it a geopolitically difficult time, and that’s also increasing the challenge for businesses in this space.
Partnerships are becoming foundational to the payments industry
In the midst of a more business-focused Money20/20, there were also signs of a trend that we’ve increasingly seen in payments: a focus on partnerships. Across the industry, companies who may in other circumstances be rivals are partnering in order to broaden their capabilities and better address the needs of their customers.
This includes banks, who are increasingly partnering with fintech players despite having seen the same companies take business from them over the past few years. This is in part due to the maturation of the industry. Many fintechs in payments have matured, with their products becoming more established and their models proving out. This has made it less risky for banks to partner with them, increasing their willingness to do so.
Banks are also realizing that predictions that fintechs would replace them entirely are not proving true. There’s a good understanding that banks continue to have a key place to play in the space, but they are trying to be more focused. They know that they can’t do everything, but they want to increase the services or capabilities they offer customers. In that situation, partnering with a fintech either in front of or behind the scenes makes sense.
As time goes on, more banks are seeing successful partnerships from their contemporaries, or recognising their own positive case studies, increasing their willingness to enter other partnerships with fintechs.
However, we are also now seeing the early stages of the next step: banks buying fintechs, a trend that is noticeably different from the state of the industry three or four years ago. One way to test the potential benefit of an acquisition is to partner with the company first, and we are beginning to see partnerships turn into acquisitions when the banks want to take projects in-house.
More industry consolidation is on the way
It’s not just banks who are making acquisitions in the payment space. While IPOs have been more infrequent, many players are looking, and in some cases have begun, to purchase companies.
With investment drying up and some weaker companies running out of cash or being otherwise unable to achieve their goals, some businesses are being forced to sell because they have no other option. Meanwhile, with conditions being less suited to IPOs than a few years ago, companies that have grown to a certain size are also selling up as their founders and investors look to make a return on the businesses.
On the other side of the table, there are still plenty of fintechs, banks and payment companies with the firepower to make acquisitions. As a result, with valuations down and potential targets having fewer options due to reduced fundraising opportunities, we are seeing the emergence of an environment that is suitable for consolidation. Both at Money20/20 Europe and in the months surrounding it, we have spoken to multiple companies who are making acquisitions key parts of their future growth plans.
Payments is not the only industry where acquisitions are up and consolidation is occurring. However, as the payments industry matures, more people want to scale, which is in part driven by consolidation.
AI is not going to take over the industry
Any industry conference has its fair share of hype around a particular topic, and this year multiple verticals are getting increasingly excited about artificial intelligence (AI), and in particular generative AI from the likes of ChatGPT and its contemporaries.
However, while there were several talks that mentioned the technology, as well as broader industry discussion that has carried over from LinkedIn and similar online communities, the payments industry does not seem to be having its head turned by the technology at quite the level other past hype cycles have achieved.
There were no mainstream payment companies at Money20/20 Europe presenting AI as their core new focus of attention, and business discussion at the conference was generally far more focused on topics with a tangible impact on companies’ bottom lines.
The reason for this is likely in part due to the fact that AI has in some form had a role in payments for many years. The fintech and banking world has been using AI and machine learning for areas such as customer support and fraud detection for some time, with applications generally providing valuable support but stopping short of being any form of game-changer for the industry.
Generative AI, the current area of enthusiasm, is similarly beneficial for some areas of the industry, but was not expected to have major impact on core areas in the short term.
Meanwhile, from a fundraising perspective, there appears to currently be a bubble around AI. Some of the amounts being raised are breaking records for early-stage funding, and the race to build the greatest models are attracting eye-watering investment. In the long run, AI may prove to have significant and unexpected impacts on the industry, but for now there is no indication that it will provide more than modest improvements in the near to medium term.
But multicurrency accounts are becoming key to cross-border payments
By contrast, in the cross–border payments space there is an emerging trend in product development that is having a meaningful impact on the space: multicurrency.
On the consumer side, companies are increasingly developing multicurrency wallet products for their customers, while on the business side there has been a noticeable rise in multicurrency accounts. Getting multicurrency accounts set up for internationally trading businesses, anchored underneath by one of the big banks, is increasingly looking to be one of the next core table stakes for the industry.
This trend has been unfolding for a while, with a well-known fintech leading the way through their own multicurrency account product. This saw a positive response from businesses, and it has a relatively low barrier to entry for other providers, particularly given the number of white-label services on the market, prompting others to launch their own services.
While this was once a niche offering from certain fintechs, or a very high-end product at banks, we are now at the point where such multicurrency accounts are becoming a commonplace means to retain or win customers across the board. Business financial teams understand the principles of what multicurrency is, and the fact that companies can hold a balance and make and receive payments without doing FX is also considered helpful.
Despite the heat, crypto is still in winter
While Money20/20 Europe had many providers looking to do business, one group that was noticeably far more absent this year was the crypto players. While in the last few years there were many stands dedicated to crypto companies, this year there were far fewer, and in general the industry has seen discussion mellow significantly on the subject.
Part of this may be due to the ongoing litigation on crypto currently occurring around the world. The US is making it challenging for serious financial companies to play in crypto, and other markets are also tough to engage with. In time, we are likely to see regulation that will help the industry engage with the beneficial sides of crypto, but that is still to come in, and in the meantime payments is keeping its distance.
From a functional perspective, meanwhile, crypto has not demonstrated a significant argument for replacing conventional fiat payments in most areas. There are few clear-cut utilities of replacing the existing payment function, although companies enabling merchants to accept crypto and customers to pay with it do represent a reasonable market due to the hundreds of millions of people still holding some form of digital currency.
Nevertheless, crypto has yet to find its killer use case in payments, and until it does it will struggle to make a meaningful case for a strong place in the market.
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