Business

M&A will increase and the crypto winter rolls on: fintech & finance predictions from Payhawk

Published

9 months ago

January 12, 2023

editorial

Konstantin Dzhengozov and Robbie Hadfield of Payhawk

Konstantin Dzhengozov, Payhawk Co-Founder and CFO

Zero-based budgeting will dominate, and fintech will win

The party’s over – that’s the tagline for 2023. Cheery, I know. We’ve spent the past decade or so being spoiled with money as a free resource. If you had a wacky idea and could get people excited, you’d get investors. Efficiency and fundamentals weren’t viewed as important as long as the top line was growing. But in the face of a shrinking economy, things are changing – and investors and budget-holders are sobering up.

While investors will keep tight hold of their funds until the recession is over, companies will likely focus on zero-based budgeting in 2023. ZBB isn’t a new philosophy, it’s been around since the 1970s, but it’s very likely to rear its head again. The idea of zero-budgeting is to keep companies from spending money they don’t have. In such a system, every spend will be scrutinized to ensure there’s good ROI and every facet of future budgets will need to be justified too.

There’s one winner here — fintech. All components of a smart fintech stack suddenly become ever more important. Companies turning to zero-based budgeting, will need real-time insight into their total spend. Payment and fintech companies will succeed, and companies of all sizes demand even greater visibility and control of their spend.

M&A activity will increase

Although businesses will mainly conserve funds for post-recession spending, I believe that mergers and acquisitions will play a significant part in the CFO agenda of 2023. While company valuations have been increasingly high over the past ten years, they’re falling. Many will struggle fundraising and don’t have the cash resources to sustain their business, which is set to create myriad M&A opportunities for larger, cash-rich companies. We’ll no doubt see consolidation across the board, not just in fintech, healthtech, and other parts of the technology sector, but in all areas of the business.

Companies with the means would do well to prioritise M&A if data from the 2001 recession is anything to go by. A PwC analysis showed that those that made acquisitions had a 7% higher median shareholder return than their industry counterparts one year later.

Crypto is dead…for now

No one’s going to touch crypto in 2023, as last year’s crypto winter continues. Stories like the collapse of alleged fraudulent cryptocurrency exchange FTX have outlined some of the many issues that come with it.

There’s hope for crypto in the future, though, if regulation can be implemented to make it safer for investment. We’ve already seen progress in this area, with the EU’s Markets in Crypto-Assets Regulation and the UK’s Financial Services and Markets Bill both potentially coming into force in 2023. I wouldn’t be surprised if we see even stronger controls emerging and being enforced later this year.

Robbie Hadfield, Payhawk Solution Engineer

Automation will allow for the reallocation of resources

With tightened budgets, companies won’t be able to increase headcount or backup functions. With this in mind, I’m expecting to see reallocation of existing resources to new activities – and automation picking up the slack. Using technology to carry out transactional activities will allow staff to focus on higher value work. For instance, the traditional Finance Manager might move into more of an FP&A role that analyses costs, budgets and variances – particularly important in recessionary periods like this.

CFO’s will have more widespread power

Efficiency is the word on everyone’s lips in 2023, thus every cost will be reviewed in depth and we’ll be constantly challenged to prove its business case. It only makes sense, then, that the CFO will be given more power in governance, particularly in the buying process. They’ll be in the room for decisions where previously they might not have been – when discussing marketing spend, for example.

The valuation of intangible assets will be a huge audit risk to the technology space

The economic downturn will lead the Big Four audit firms to put intangible assets under much greater scrutiny, leading to significant mark-downs on impaired assets. This will have a huge impact on the losses we’ll see on tech company P&Ls.

Investment in new markets will be more phased

Companies will continue expanding into new markets, but will do so in a more gradual manner than in previous years, in a better economy. Incubation periods in which businesses test whether they want to invest in a region will require shortcuts to drawn-out processes such as opening a bank account and setting up a legal entity. This will give rise to more Employer of Record, Professional Employment Organization and fintech payment solutions, which can get the job done much quicker.

Up Next

The impact of the cost-of-living crisis on eCommerce businesses

Don't Miss

Avoiding the costs and consequences of the updated VAT penalty regime

Business

In-platform solutions are only a short-term enhancement, but bespoke AI is the future

Published

15 hours ago

September 27, 2023

editorial

By Damien Bennett, Global Director, Principal Consultant, Incubeta

If you haven’t heard anyone talking about artificial intelligence (AI) yet, then where have you been? Conversations about AI and its advantages to society have been a key talking point over recent months, with advances being made in the generative AI race and ChatGPT opening a whole plethora of possibilities. Many have highlighted the advantages of AI, but notably it’s ability to create human-like content.

But these discussions have only scratched the surface of what AI is capable of doing. It is for far more than just essay writing, adding Eminem to your rave and photoshopping dogs into pictures.

In marketing, we have been using AI for years, for everything from analyzing customer behaviors to predicting market changes. It’s enabled us to segment customers, forecast sales and provide personalized recommendations, having a huge impact on how our industry works.

It is even, for the more savvy marketers of the world, becoming a key tool in maximizing budget efficiency – which is apt, considering over 70% of CMOs believe they lack sufficient budget to fully execute their 2023 strategy.

Now, as AI becomes more intelligent, the number of efficiencies it can unlock continues to rise. Not only can it help brands get the most out of their available resources and identify any areas of waste, but it can also help highlight new opportunities for growth and maximize the impact of your budget allocation.

The trick, however, is to veer away from the norm of using in-platform solutions with a one-size-fits-all approach and create your own, bespoke solutions that are tailored to your business needs.

Pitfalls of in-platform solutions

In-platform solutions aren’t by any means a bad thing. In fact, built-in AI tools have become increasingly popular, owing to their ease of integration, user-friendly interfaces and minimal set up requirements. They come pre-packaged with the platform, offering the user the ability to leverage AI technologies without the need for in-depth technical expertise or the upfront cost of building a solution from scratch.

However, the streamlined and accessible nature of in-platform AI solutions comes at the expense of complexity and customization. They are designed to serve a broad user base, but for the most part are built using narrow AI solutions with predefined features and workflows.

This makes them great for assisting with common AI tasks, but they lack the flexibility to tailor functionality towards unique business requirements or innovative use cases, limiting the potential efficiencies and cost savings that can be unlocked. Additionally, if a business’ competitors are using the same platform, they are probably using the same AI solution, meaning any strategic advantage gained from these will be reduced.

Bespoke AI solutions, on the other hand, may carry a higher initial investment – but can offer a significantly more attractive ROI over a short amount of time.

Why customized and adapted AI is the key

The difference between bespoke AI and in-platform solutions is similar to that between home cooked food and a microwave meal. Yes, it is more time consuming to prepare, and yes it likely carries more of an upfront cost, but the end result is going to be far more appealing and will carry more long-term value (financially… not nutritionally).

That’s because bespoke solutions, by nature, will have been tailored to address your brands specific needs and challenges. These custom-built tools allow for much greater efficiencies by streamlining workflows across different channels, automating more complex tasks, and providing deeper, more relevant insights.

The increased level of optimization can significantly improve productivity and reduce operational costs over time, offering a higher ROI. The increased flexibility of bespoke AI also allows brands to implement innovative use cases that can significantly differentiate them from their competitors.

The data analyzed can be specifically chosen to match business requirements, as can the outputs of the AI tool, providing a significant advantage when understanding and acting on the insights provided.

Additionally, these tools are, by nature, more scalable. They can be updated, upgraded and expanded as needs change, ensuring they continue delivering value as the business grows. They can also be designed to integrate with any existing IT infrastructure, from CRM systems and databases to marketing platforms and sales tools – leading to more efficient and effective decision-making.

Managing finances with AI

It’s no secret that AI in marketing automation has, and will continue to, revolutionize the way marketing is done. It has a bright, if slightly terrifying, future and can help CMOs to unlock new efficiencies, maximize the impact of their budgets and increase their ROI. And as this technology becomes more advanced, its impact will only increase.

But we already know that…and so does everyone else.

So, in order for businesses to make themselves stand out from the crowd , they must look to fully adopt the power of AI. Creating a customized and unique AI solution could be the way to set yourself apart from your competitors. A bespoke AI tool can provide brands and businesses with features unique to them and their business needs. As a result, companies will benefit from more useful data and better results to make more data-driven decisions for their business. Ultimately, this will help brands to maintain a competitive edge over their competitors, deliver ROI and most importantly optimize their budgets.

Business

Exploring the Transformative Potential and Ethical Challenges of AI in Wealth Management

Published

2 days ago

September 26, 2023

admin

Nuno Godinho, Group CEO of Industrial Thought Group

In recent years, the advent of AI has sparked both excitement and scrutiny within the Wealth Management industry. The technology’s capabilities, including but certainly not limited to generative AI algorithms like ChatGPT, offer a new dimension to data analysis, market prediction, and portfolio management. However, while it presents a promising avenue for enhancing decision-making and elevating client interaction, AI also carries inherent challenges that demand careful consideration.

Benefits of AI in Wealth Management:

In a world where CX is key, AI enables wealth managers to provide personalised advice, improved portfolio performance, real-time insights, and convenient access to information and support. Previously it has been impossible for advisors to deliver hyper-personalisation at scale; now, AI-driven customisation lets them tailor investment strategies and recommendations to their clients’ unique financial goals, risk tolerance, and investment horizon.

AI algorithms can also analyse vast amounts of data to identify trends and opportunities, resulting in potentially higher returns on investments. And, more widespread use of automation will gradually reduce the cost of wealth management services, meaning higher-quality investment advice at a lower price. This is critical as firms fight to stay relevant for modern investors disillusioned by traditional advisory firms and private banks.

Relationship-wise, there are many other advantages. AI-driven data analytics make it easier to gain a deeper understanding of an investor’s needs, preferences, and behaviours, all of which help to build long-term relationships. Through predictive analytics, firms can differentiate their service and proactively identify new investment opportunities, such as emerging market trends or underperforming assets. At the same time, chatbots and virtual assistants facilitate constant communication to answer queries and increase engagement. By strategically integrating AI technology into their operations, firms have the power to optimise top and bottom lines, strengthen client connections and position themselves for long-term growth.

Navigating the Ethical and Practical Challenges:

While AI holds remarkable potential, major obstacles must be overcome. With AI’s reliance on large amounts of data, ensuring client data confidentiality, managing consent, and complying with global data protection regulations like GDPR are significant challenges. Another issue is algorithmic bias – as AI learns from data, it may inadvertently perpetuate inequalities or biases present in the training datasets used. Vigilance is necessary to ensure that AI systems don’t amplify these issues. A key concern is the absence of standard governance, leading to a lack of accountability and transparency. Black-box algorithms can make decisions without providing clear explanations for their reasoning, making it difficult for clients and regulators to understand and trust AI-driven outcomes. Overall, the responsibility for AI-generated recommendations remains complex, requiring collaborative efforts to establish robust regulatory frameworks.

Striving for Data Integrity and Reliability:

The efficacy of AI-driven solutions hinges on the quality of training dataset they are supplied with and rely upon. Therefore, ensuring accurate, unbiased, and comprehensive datasets is paramount to generating trustworthy insights. The absence of standardised data sharing can lead to skewed results, ultimately impacting the quality of AI-generated advice. Transparency in data usage, validation, and generation reasoning will be pivotal to cultivating client trust and minimising systemic risks, which ties back to the absence of standard governance, as the output from AI-generated advice will only be as good as the data sets provided. We need to understand the “lineage” of all data used and generated by the algorithms. Until the industry can come to some accord on how we plan to use all of our respective data, it will be prone to various biases and fragmented advice, which will lead to liability and reliability issues down the line. It’s worthwhile wondering whether we can see the industry opening up in an age of data equals value.

The Role of Collaborative Partnerships:

Amidst these challenges, collaborative partnerships emerge as a potent avenue. Established wealth management firms can harness the expertise of FinTech AI companies to augment their capabilities while mitigating the risks associated with AI adoption. A symbiotic relationship, where innovative AI solutions are developed by trusted partners, helps safeguard against potential pitfalls and aligns with the pursuit of ethical, data-driven decision-making.

Looking Ahead: Striking a Balance for Sustainable Progress:

As we journey into the AI-powered future of wealth management, it’s evident that a balanced approach is essential. The integration of AI has the potential to expedite the transition to wealth management 4.0, revolutionising personalised client experiences and advisory services. However, this progress must be underpinned by clear ethical guidelines, data integrity, and collaborative partnerships. Striking this equilibrium promises not only a more informed, efficient, and personalised industry but also one that upholds the principles of transparency, accountability, and client trust.

In conclusion, AI’s impact on the wealth and asset management landscape is profound, offering unparalleled insights and opportunities. While navigating challenges will be crucial, a collective effort to harness AI’s power while ensuring its responsible application will pave the way for a resilient, future-forward industry.