Will AI change finance forever?; Which fintechs might IPO in 2023?; The potential of social commerce for payment processors;
In this edition:
1️⃣ Will AI change finance forever?
2️⃣ Which fintechs might IPO in 2023?
3️⃣ Banks and third-party wallets compete for share
4️⃣ Embedded Payments Collaborations By Financial Institutions
5️⃣ AI innovations fall into four categories
6️⃣ The key to selling in a downturn and showing customers why you’re valuable
7️⃣ The potential of social commerce for payment processors
And many more….
Will AI change finance forever?
The rise of the ChatGPT shows how quickly AI can learn and grow. Of course, it takes a lot of data and training but with time it gets smarter and smarter.
Should we expect AI in finance? I think the answer is yes and we can see AI-powered bots helping customers with basic services such as finding information or support, sending money to customers’ contacts, taking notes and sending messages. A great example of such bots would be Oleg by Tinkoff which lives in the banking application and helps customers.
In the short and medium terms, we can expect these types of AI-powered bots further enhance and do little comprehensive tasks such as preventing fraud or scams, sorting news and information, doing simple analyses of your finance and helping you with budgeting.
However, in the long term, I expect AI-powered bots significantly integrate into our financial life. How could that potentially happen and what contributes to it? Such technologies open banking, embedded and open finance are removing the boundaries between finance and the everyday life of the customers enabling financial institutions as well as non-financial harness immense amounts of customer data. As mentioned above one main attribute of the growth of AI is the data and how quickly it can learn from it. By feeding the data gathered from customers companies can AI bots that can go beyond doing basic assistance and change finance forever and become integrated into our financial life.
In the long term, AI can potentially help customers set smart goals and how to achieve them by learning from their behaviour and similar patterns, help with comprehensive financial and wealth management by learning from best practices in the market as well as prevent them from comprehensive fraudulent activities and others.
So far we have explored how AI could potentially change how customers do their finance, however, there is an aspect where AI can help companies but this is a topic for another post.
Which fintechs might IPO in 2023?
IPOs delayed in 2022
Neobank Zopa had been very public about its intention to list before the end of 2022, especially after reaching profitability and securing its banking licence.
Unfortunately, that plan was scrapped in June 2022 as CEO Jaidev Janardana said “the markets are not there” for an IPO.
The payments group formerly known as WorldRemit wasn’t high up on our IPO list for 2022… until reports emerged that its quietly-planned IPO had imploded due to accounting and management issues at the company.
Another very public 2022 IPO hopeful was Atom Bank, having repeatedly signalled that it planned to list last year, and even as late as February raising £75m as part of its “drive to IPO”.
That listing never happened, and in November Atom Bank conceded that an IPO wasn’t going to happen, with a fresh £30m funding round and a new timeline to go public in 2024 at the earliest.
Most likely to IPO in 2023
Last year two fintechs had publicly stated or were heavily reported to be planning to list in 2022, the same cannot be said for 2023.
With most keeping tight-lipped about their plans (or publicly stating that they won’t list in 2023), there are no candidates for ‘most likely to IPO’ this year.
Moderately likely to IPO in 2023
In October 2022 it was reported that Zopa is close to raising $100m at a higher valuation, which would give the company a longer runway before its IPO, however, this raise has yet to be announced by the bank.
If Zopa can use that funding to further increase its existing profitability in 2023 and position itself as a fintech defying the downturn, then it might stand an outside chance at listing.
Stripe president and co-founder John Collison’s message that Stripe remains “very happy as a private company” hasn’t changed in the past 12 months, in fact inside the fintech the situation has worsened.
Firstly, Stripe’s internal valuation (an accounting metric that compares Stripe’s common stock against those of its listed peers) has been cut from the $95bn price tag it last raised private capital at, to $74bn, a 28 per cent decline. Secondly, the company in November slashed its headcount by 14 per cent, as CEO and co-founder Patrick Collison wrote that he recognised Stripe had made a mistake by increasing costs as it enters a “different economic climate”.
However, the reason why Stripe is still moderately likely to IPO is simply due to its sheer scale and the weight of expectations on the company. Even at a lower $74bn valuation, it would still be one of the largest IPOs on record and Stripe’s leadership is under increasing pressure to list from external investors and staff who are keen to exercise their options before they expire.
Banks and third-party wallets compete for share
Markets where banks lead
The emerging markets where banks are the strongest, such as Brazil and Nigeria, tend to have a solid payments infrastructure and a captive customer base stemming from historical first-mover advantage or regulatory restrictions on alternative rails. Banks also retain a leading position in markets where financial inclusion and card penetration are low and regulatory regimes have not permitted nonbanks to offer wallets to underserved populations.
In some markets with well-established banking infrastructure, governments have intervened to set up unified payment systems that offer instant bank transfers free or for a small charge.
Banks in emerging markets may also want to take note of the strategies followed by their counterparts in developed markets such as Singapore and Hong Kong. Some banks are launching their own wallets, such as DBS PayLah! by DBS in Singapore. Others offer a wallet-like user experience on their mobile banking app and enable customers to complete transactions by scanning a quick response (QR) code or using a near-field communication (NFC) device. Yet others are partnering with Apple Pay, Samsung Pay, and Google Pay to ensure they keep the balances of customers’ checking and savings accounts even if they miss out on the last mile of payments.
Markets where nonbank wallets are ahead
Nonbank wallets tend to do best in markets with less developed payments infrastructure and where telecom companies and other providers face no regulatory barriers in creating strong value propositions to reach underserved customers. In Kenya and Ghana, for instance, telecom companies’ first-mover advantage and innovative efforts to extend financial services to mass markets via mobile wallets have resulted in very high penetration levels.
Wallets are the leading e-commerce payment method in the Philippines (accounting for 31 percent of transaction value), Vietnam (25 percent), and Indonesia (39 percent), and they take second place in Thailand after bank transfers. Some wallets have achieved very high penetration levels in these markets. In the Philippines, for example, the registered users of the top two wallets, GCash and Maya, account for 83 and 65 percent of adults, respectively. Such successes can partly be ascribed to the digital know-your-customer (KYC) processes that enable wallets to offer customers a quick and easy onboarding experience. However, as regulatory regimes are simplified and banks are allowed to offer a fully digital KYC process instead of requiring new customers to visit a branch, this advantage will be eroded. Moreover, banks will benefit from the introduction of new QR standards — such as QRIS in Indonesia and QRPh in the Philippines — that are forcing wallets to open up their proprietary QR networks to bank apps.
Source Mckinsey & Company
Embedded Payments Collaborations By Financial Institutions
Financial service providers, payment platforms, and infrastructure firms teamed up to launch new solutions in the embedded payments ecosystem. Key trends include innovation in remittances, checkout services, and the adoption of emerging forms of payments like cryptocurrencies.
The key to selling in a downturn — and showing customers why you’re valuable
What is a value driver?
A value driver is a top-of-mind concern that exists with an economic buyer/customer, whether you, the vendor, show up or not. Value drivers fall into four buckets: growing revenue, reducing risk, accelerating time-to-value, or reducing cost. Every company will have its own specific pain points that it wants to solve with new technology, but when you drill down and ask why a particular problem is important, you’ll always get an answer that impacts cost, risk, time, or revenue.
Customers now value efficient growth
Customers over the past several years have primarily been interested in growth-related value drivers: companies have invested heavily in software in order to drive new revenue streams and accelerate existing ones. Today, however, customers are laser-focused on productivity and efficiency value drivers, like automating workflows, consolidating tech stacks, and reducing costs.
According to C3’s Tom Siebel, there are two types of customers going into 2023:
- Customers who anticipate a recession and cut costs across the board, including their IT spend
- Customers who invest in IT to drive efficiencies and save on costs
Companies need to focus on winning both customer profiles by explaining how their products help do more with less.
Emphasize productivity and efficiency value drivers
It’s still important to tell a growth story about your product, but leading with productivity and efficiency drivers will better help you address your customers’ pain points. Ask yourself: your customers have many choices for investing in growth, so how is your product going to give them the most value for their dollar? If you have a renewal coming up and you initially sold your product on making data-driven decisions to identify new revenue opportunities, for instance, consider instead emphasizing to your customers how your product can help them identify previously overlooked opportunities for efficiency and productivity gains.
Reassess value drivers across go-to-market motions
In this climate, most software purchased through a product-led growth motion is going to come under scrutiny. Some product-led companies may not have developed messaging that speaks to value drivers at all and are now in the position of developing value-driven messaging from scratch. Some sales-led companies, on the other hand, may have muddled messaging that doesn’t make it clear what value their product delivers.
In all of these cases, it’s critical to get crisp on what problems your product solves for your customers today. “Your entire customer-facing team needs to be crystal clear on the problems you solve as it relates to the current challenges your buyers are facing right now,” according to John Kaplan at Force Management.
Communicating how your product helps customers do more with less will be key to weathering the storm.
The potential of social commerce for payment processors
According to Statista, Reddit coins (which can be acquired via a paid subscription or as a one-time purchase) generated a little over $11m in 2021 — a number that pales in comparison to Reddit’s much higher advertising revenues. For processors, it’s likely that in-app currencies that reward creators will continue to be dwarfed by the much bigger opportunity for social commerce — using social media platforms to sell products and services.
China already has a booming social commerce scene, and platforms like TikTok and Instagram are investing in winning similar ecommerce gains in the West (the former launched in-platform shopping in the US near the end of last year). For payment processors that make money from transactions, supporting in-app ecommerce payments will likely remain the major draw.
Social media platforms may also look to expand their own in-house payment processing capabilities in the future. Forbes reports that J.P. Morgan is working with TikTok parent company Bytedance to develop in-app payments technology for products like TikTok Coins, which can be bought and used to send gifts to creators. However, the move has raised eyebrows in the US, with Senator Marco Rubio saying that the partnership risked exposing Americans’ sensitive data to the Chinese Communist Party.
As new platforms continue to emerge and existing platforms fight for creators’ and users’ attention, it’s important for payments companies to stay abreast of ongoing social media trends. For Stripe, which is already embedded in Twitter, Coins could be just one of many payment opportunities pursued by the Musk-helmed platform this year.
Source FXC Intelligence
AI innovations fall into four categories
The wide range of AI innovations is expected to impact people and processes within and outside an enterprise context, making them important to understand for many stakeholders, from business leaders to the enterprise engineering teams tasked with deploying and operationalizing AI systems.
Data and analytics (D&A) leaders have the most to gain, however, from using the Hype Cycle outlook to craft their AI strategies for the future and use technologies that offer high impact in the present.
The AI innovations on the Hype Cycle reflect complementary and sometimes conflicting priorities across four main categories:
- Data-centric AI
- Model-centric AI
- Applications-centric AI
- Human-centric AI
The AI community has traditionally focused on improving outcomes from AI solutions by tweaking the AI models themselves, but data-centric AI shifts the focus toward enhancing and enriching the data used to train the algorithms.
In addressing AI-specific data considerations, data-centric AI disrupts traditional data management, but organizations that invest in AI at scale will evolve to preserve evergreen classical data-management ideas and extend them to AI in two ways:
Add capabilities necessary for convenient AI development by an AI-focused audience that is not familiar with data management.
Use AI to improve and augment evergreen classics of data governance, persistence, integration and data quality.
Innovations in data-centric AI include synthetic data, knowledge graphs, data labeling and annotation.
Despite the shift to a data-centric approach, AI models still need attention to ensure the outputs continue to help us to take better actions. Innovations here include physics-informed AI, composite AI, causal AI, generative AI, foundation models and deep learning.
Innovations here include AI engineering, decision intelligence, operational AI systems, ModelOps, AI cloud services, smart robots, natural language processing (NLP), autonomous vehicles, intelligent applications and computer vision.
Decision intelligence and edge AI are both expected to reach mainstream adoption in two to five years and have transformational business benefits.
This group of innovations includes AI trust, risk and security management (TRiSM), responsible AI, digital ethics, and AI maker and teaching kits.
A digital approach to SME banking
Small and medium-size enterprises are a clear growth opportunity for banks in a difficult environment. A digital-first approach with a personal touch can help banks crack the code of this historically overlooked segment.
Years of low interest rates, difficult consumer, corporate, and investment banking business conditions, and a tricky macroeconomic environment have squeezed many core areas of business for banks. In this context, previously overlooked segments are worth revisiting. Small and medium-size enterprises (SMEs) in Europe represent one such opportunity for banks seeking to grow. European Central Bank (ECB) data highlight that for 20 percent of SMEs in Europe, access to financing is their most urgent problem. The same data shows that one in five SMEs is unable to access the credit it was planning to use.
Despite the demand, the opportunity remains elusive for banks, which have struggled to serve SMEs successfully. The challenges from a bank’s perspective are many: smaller business clients demand a higher intensity of bank attention with limited returns — and a higher (perceived) cost of risk. Even quite small businesses can have complex and rapidly evolving needs, along with an unsteady risk profile; and yet, they often expect premium service. And there is no one-size-fits-all approach banks can apply to these clients, given the variety of needs, business types, and decision makers.
Structurally, SMEs as a group fall between the cracks of retail and corporate banking, so from a banking perspective, there is often no natural organizational “home” for them as clients. SMEs also represent a broad range of business sizes: those at the micro end of the segment share similar dynamics to a personal or affluent consumer, while those at the larger end have profiles and requirements more aligned with commercial-banking clients. This uncertainty is illustrated by the fluidity of many banks’ “organigrams,” whereby the SME business is pinned, and re-pinned, to different parts of the business — finding a home in neither the retail nor the commercial-banking segments.
However, while many of the challenges outlined above will continue to be a factor for banks considering serving the SME segment, banks now have access to tools and capabilities that can alter the equation to a point where SMEs can be served well and also served profitably.