Signals Outlook Survey Winter '23: Is the fintech pity party over?

In a few short weeks, many of us will be gathered in NYC for the Fintech Formal. A time where we can all forget about the lack of funding, the looming bankruptcies, bank partnership turbulence, and more. Did I really just say all that? 

But when we gather again in 2024, will the picture be as grim? We asked experts as well as the broader community, and the answer depends on who you ask and which sector or region you’re asking about. 

We also asked about what the biggest surprises have been over the past 6 months (bank failures) and what the biggest fears and predictions are for the next 6 (regulation is gonna be a hot topic). Note that not every person consented to their name being used, but they did give us their info when filling out the survey to confirm results. 

Let’s dive in!

Across the board, industry-wide sentiment was a resounding Neutral-to-Bullish 3.57 out of 5. We’ll track how this figure evolves over the course of future bi-annual surveys, but the responses in this go-around give us a really strong baseline to understand where everyone’s head is at today.

In terms of which areas people are most bullish and bearish on, payments is still the golden child. Not surprising given that the payments industry is projected to reach $505.3B (19.7% CAGR) by DataHorizzon Research, and FedNow recently launched. When asked for predictions over the next 6 months, Scott Rosenblum of LEVEL PR echoed others in predicting that FedNow will gain adoption as the “benefits of FedNow start to blossom.” Open banking, payroll and business financial management also had a lot of bullish sentiment. 

And, unsurprisingly, crypto is where folks are the most bearish. However, if you look at predictions for the next six months, you’ll see that there are some experts and community members who expect crypto to make a comeback (as of this writing, Bitcoin is priced at $35,220– a roughly $10,000 increase from pre-FTX collapse levels). 

Lastly, while there was consensus on several areas, there was a large amount of divergence on the personal financial management space. Consumer neobanks and BaaS/LaaS also had sizable divergences. With all four of these, community members were more bullish than the experts we surveyed. 

Respondents were most bullish on Latin America, and most bearish on Europe and the UK. This was surprising given that the UK is second only to the US in the number of fintech unicorns, although much like other regions, there’s been a big valuation reset for companies based there. 

Only the early stage had some divergence here. Otherwise, there was lots of agreement on mid to late stage companies and their outlook. The earlier the company, the more bullish people were. This follows the ongoing pattern of venture funding accumulating to earlier rounds as late-stage companies reset their valuations in line with public comps.

Here’s an interesting find: While both groups were modestly bullish on open banking, it was also one of the most mentioned areas by experts when asked which sectors are overrated. Regulators in the US and Europe have recently proposed rules that would require (or in Europe’s case, further PSD2 requirements on) banks to share financial data via open APIs. These rules would dramatically reduce the cost of accessing financial data for third parties– TBD on how this impacts the bottom line for data aggregators, who may struggle to differentiate.

BaaS received notable mention, with Jason Mikula warning of an “Regulatory over-reaction to [the] BaaS implosion” (which he covers in detail at Fintech Business Weekly). AI, fraud, stablecoins, real estate and lending were also mentioned by experts. Community members additionally named neobanks and crypto and as the most overrated areas of fintech. 

For underrated, payments was frequently mentioned by both groups, especially B2B and cross-border. Despite a number of down rounds and public valuations tumbling over the past six months, our own Head of Revenue Partnerships, Alex Gillette, points out that “intrabank operational efficiency tooling” and other fraud/AML solutions still have a long way to go from here. Maybe we’ve overcorrected? 

Other responses from experts included crypto, LatAm fintech infrastructure, credit, consumer neobanks, and business KYB. On top of payments, community members named stablecoins and middleware as well. 

When we asked the groups what the biggest surprise of the second half of 2023 has been, failure was the theme. First were bank failures, and second was the lack of more startup bankruptcies. “No more banking failures post the SVB/Signature moment,” said Matt Harris of Bain Capital. Frank Rotman of QED and Samir Desai of Hudson River Trading both mentioned unexpected strength in the current environment: “Early stage hasn't corrected as much as I expected it would,” Frank wrote. “The resilience of certain vertical fintechs in a tough market environment,” added Samir. 

Similarly, the community mentioned fewer companies going out of business than expected, but also brought up AI. Fay Scott of april said the surge of AI surprised her this year. 

The surprises bled into the biggest fears. Strained venture funding, regulatory concerns and the macro environment received the highest mentions from both groups. Frank said he worries “Good businesses won't have a chance to stay independent if downstream capital isn't available,” while Matt worries we haven’t seen the end of bank failures. 

Echoing Frank, Samir mentioned that a number of good ideas might not make it:

Experts and community members alike are expecting valuations to continue resetting over the next six months, as well as more bankruptcies and shutdowns. The upside, as Frank details:

AI was another hot topic. Samir predicts that we’ll see more AI-powered fintech offerings in transaction enrichment, curated financial product recommendation, and financial advisory. He also mentioned that there could be a re-emergence of blockchain, but in truly value-added ways that pair with AI and/or traditional fintech. Matt also bucked the bearish sentiment around crypto, predicting a crypto comeback in the next few months. 

Community members anticipate that regulatory changes could harm data aggregators, interchange revenues, and impose higher penalties across the fintech ecosystem in the next six months. Scott expects the Supreme Court to blow it on the CFPB ruling, or at the least send the agency back to Congress for retooling. 

We’re going to continue doing these surveys every six months, so be sure to check your email and the TWIF Slack for invites :)