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    INTERNATIONAL CORPORATE BANKING  |  3 POINT PERSPECTIVE

    Three trends driving FinTechs' new era

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    Contributors: Michael Leggo, Lucy Demery, Maarten van Rossum, Gary Katz
    29 May 2024

    FinTechs are evolving. As regulators open up instant payment schemes to global flows, new business opportunities are emerging. M&A is on an upswing and IPOs could be set for recovery as the industry’s fundamentals improve. Treasury is stepping up to provide strategic support to the business, embracing a fresh mindset – including becoming a profit centre–and deploying new tech such as AI.

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    1. Instant payments are going global 

    FinTechs have leveraged payment schemes such as Faster Payments in the UK for many years and, as they increasingly expand into multiple countries, some have tried to utilise national payment schemes for cross-border payments. But such arrangements are complex, not least because differing time zones and operating hours make it harder to provide the slick user experience FinTechs are known for. In addition, utilising national schemes for cross-border payments may not comply with these countries’ payment scheme regulations.

    Following the G20’s commitment to transform cross-border payments by 2027, regulators are increasingly opening up domestic instant payment schemes to international flows.

    UK Faster Payments now includes Payment Originating Overseas, which enables international payments to clear through the local scheme. Europe’s One-Leg Out Instant Credit Transfer scheme, which went live in November 2023, facilitates European cross-border access; the US offers International ACH; and several national schemes – such as Singapore and Thailand – have linked up in bilateral arrangements.

    Accessing domestic schemes via authorised cross-border mechanisms not only ensures regulatory compliance but could make payments faster while also lowering costs. Many of these schemes operate 24x7 with nearly immediate settlement, enhancing end-user experience. 

    As FinTechs broaden their product offerings and go global, they need to work with banking partners that can not only provide access to payment rails but ensure regulatory compliance.

    2. Capital markets are reopening

    The onset of higher interest rates has had a profound impact on many FinTechs, which – similar to other disruptors across sectors – previously enjoyed rich valuations and low-cost credit. Valuations shrank, credit became more expensive and harder to source, and global growth, which had underpinned FinTechs success, slowed.

    This lean period appears to be at an end. FinTech stocks are up 23.35% in the last six months to 20 May 2024,i* boosted by the improving interest rate outlook as well as EV/revenue and EV/EBITDA multiple expansion. Revenue prospects are supported by the improving macro environment and FinTechs’ greater focus on cost discipline, profitability, sustainability and differentiation, which should enable further margin expansion.

    *Source: FactSet, as of 20th May 2024

    Digital consumer finance platforms have also used the so-called ‘FinTech winter’ to improve the quality of their platforms and unit economics. This has been either through streamlining their operations to re-focus on their core mission or expanding their product offerings to offer more to their user base to enhance loan-to-value and customer acquisition payback periods.

    There are also hopes of a resumption in tech IPO activity, with financial sponsors eager to exit investments and return funds to limited partners. However, public investors are now more discerning. Platforms will need to have meaningful scale, profitability (or a near-term path to profitability) as well as a differentiated business model. Valuation approaches are more focused on profitability-based metrics rather than the revenue and gross margin approaches utilised during the COVID-19 boom.

    Private market activity is also accelerating, as demonstrated by some recent large-scale transactions, particularly in the payments space. 

    3. Treasury is getting smarter

    FinTechs’ focus on liquidity requirements and optimising margins puts the onus on treasury. Unless the evolving needs of the business are addressed, value could be eroded, compromising future funding rounds and possible M&A processes. Likewise, FinTechs larger role in the financial system is prompting tougher regulatory scrutiny (from the Financial Conduct Authority in the UK and via the third Payment Services Directive (PSD3) and a new Payment Services Regulation in Europe, which could increase complexity and costs.

    In response to these challenges, treasury is getting smarter. It is adopting more robust controls, governing client fund segregation for instance, and is seeking to deploy emerging technologies such as artificial intelligence to improve efficiency. 

    Firms are attracting seasoned finance professionals from outside the FinTech industry, bringing a core treasury skillset to the mix, and are concentrating on leadership retention, to head off strong competition for talent and high turnover of senior leaders. 

    Meanwhile, with higher rates and revised expectations of cuts throughout 2024, treasury continues to focus on cash and liquidity management, to optimise working capital and yield.  

    As treasury becomes a strategic profit centre, rather than a cost centre, Treasurers are increasingly seeking access to a wider range of investment solutions, including money market funds. Treasury policy and counterparty risk management is also now on the agenda. 

    With FinTechs expanding internationally—and diversifying product lines— treasury is playing an increasingly strategic role. Treasurers and finance teams should work with banks that understand the complexities of evolving regulations and that can unlock value via their global network, delivering cohesive treasury coverage across their platform and deploying solutions that can act as a competitive differentiator for their operations.

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    About the experts

    Michael Leggo

    Head of FinTech UK, International Corporate Banking

    Michael Leggo is a Managing Director and Head of UK FinTech, International Corporate Banking at Barclays, based in London. Michael joined Barclays in 2008 and prior to leading our Fintech business was Co-Head of UK Industrials Coverage. Throughout his time at the firm, he has focused on the global treasury relationships & capital deployment to clients. He is currently responsible for delivering the Barclays platform to our FinTech client base.

    Lucy Demery

    Managing Director FinTech Financial Institutions Group EMEA

    Lucy Demery is a Managing Director, responsible for FinTech Investment Banking, based in London. Prior to joining Barclays, she was Global Head of FinTech Banking at Standard Chartered Bank where she played a leading role in defining and developing strategic partnerships with FinTech clients and investors across the bank. Lucy grew up in Hong Kong, graduated with First Class Honours from the London School of Economics and received her Juris Doctorate from Columbia University, where she was a Kent Scholar.

    Maarten van Rossum

    Head of Global FIG Sales

    Maarten van Rossum is the Head of Global FI Cash Sales at Barclays, based in Amsterdam. In his current role, he leads a global team of cash sales specialist covering the Financial Institutions and FinTech client segments. In addition to his position at Barclays, Maarten holds advisory roles at several industry bodies covering the international payments market. He is a member of the Advisory Group on Market Infrastructure for Payments (AMI-Pay) at the European Central Bank, a forum for the exchange of views on developments in payments. He serves on the TARGET Workgroup at the European Banking Federation and was a founding member of the Swift workgroup that developed the new GPI standard for cross-border payments.

    Gary Katz

    Global Head of PayTech and Integrated Platforms

    Gary Katz is Managing Director and Global Head of PayTech in Investment Banking. Gary is based in New York and has over 20 years of industry experience and has worked on mergers and acquisitions, equity and leverage transactions across a wide range of Technology clients including Payments and Financial Technology. Prior to joining Barclays, Gary was at Credit Suisse for 15 years, where he led their FinTech and Payments Technology Investment Banking business globally.

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