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The European VC market is in turmoil. The number of capital venture deals in Q1 2023 fell by 19.2%, while their value fell by a whopping 32.1% quarter-over-quarter to just under 12 billion Euros.

VCs can no longer enjoy the low-interest rate environment of the past decade, with the European Central Bank (ECB) increasing key interest rates by 1.25% in 2023, making raising capital more costly. Investors are becoming risk-averse as well. The first quarter of 2023 hit European VCs with dry powder shortages, leading to an 8-year funding rate low of just 3.4 billion EUR.

Where 2022s fintech was considered one of the fastest-growing industries, its 2023 counterpart seems to suffer just as much as VCs. While the NASDAQ rose by 16.8% in Q1 2023, fintech stocks stayed flat, underperforming both the tech and finance sectors. Is the industry in decline, how and why is the sector turning from growth to profitability, and what does this indicate about the future?Current Affairs And Valuations

The alarm bell for fintech rang when TriplePoint Venture Growth and Schroders marked down their stakes in Revolut, suggesting that the privately traded neobank giant lost between 15% to 46% in its value. Schroders also slashed the valuation of its holdings in Atom Bank by 31%. The public market mirrored those private equity concerns as the EV/NTM Revenue median multiplier decreased to 1.9x in March, compared to 2022s annual of 4.2x. Projected revenues for 2024 were also reassessed at a lower value all over the sector.

Part of the market-specific reason for this decline is the extreme instability of the US regional banks. Although the post-SVB collapse period saw a 2% outflow of deposits from medium-sized banks implying a net positive for fintech as an alternative to conventional banking the real effect is double-edged. Most fintech companies dont have a banking charter, so they use sweep accounts that automatically redistribute fintech deposits to a network of partner banks.

The issue lies in the fact that most members of this network are the same mid-sized banks with the same vulnerability to systemic banking crises. In late April, Cross River Bank one of the largest banking partners for fintech firms got an FDIC enforcement order over its lending practices.

As if it wasnt enough, 2023 neobanks are now facing a fearsome newcomer in the form of tech giant Apple Inc.AAPL . It was easy to grow the customer base by offering high-yield savings accounts as the onboarding tool when the national average rates were at the extremely low rate of 0.39%. Now, fintechs have to compete with a 4.15% rate, backed by the reputation of a globally recognized and respected brand. While the offering is currently limited to the US, there is no certainty that European markets wont be next.From Growth To Profitability: Strategizing For The Future

Investor sentiment has also undergone a shift. Now they demand profitability over revenue growth, and the fintech industry is well aware. This is seen from changes in financial performance, with Starling and Revolut already having hit annual profitability and Bunq reaching quarterly profits for Q4 2022. Those who face unavoidable losses resort to communication, like when the Danish bank Lunar raised additional capital in February with the goal of shortening the path to profitability, or when Monzo reported being on track to profitability by the end of 2023.

The combination of broader economic and financial situations, fintech valuations, and market-specific conditions of early 2023 represent a changing trend from growth to profitability. Investors no longer tolerate high burn rates for profitless growth. They want early traction and fiscal prudence.

Uncertainty in the banking system, as well as Apples daunting market entrance, favors abandoning extreme reliance on attracting deposits as well as a paradigm shift to diversification. What worked well for growth doesnt for profitability, a notion backed by a McKinsey estimate for Western Europe which claims that daily banking costs to serve are almost two times higher than the revenue per holder.A Shift To Super Apps

As for what the future holds, I believe more companies will be exploring new niches, especially SME banking and B2B services; as well as a realignment towards leveraging data to transform personalized super-apps. The resilience of the one-stop-shop model is demonstrated by Revolut, Wise, and recent M&A activity. Even in a bearish market, diversified companies with multi-vertical integration like Nuvei secure gigantic exit valuations.

One example of this new fintech strategy shift is WeBank: the Chinese behemoth leverages its user base for activities with more lucrative profit margins such as loans. The company also cuts costs by using machine learning and collected client data to calculate risk and create customer profiles, which in turn led to record low ratios of non-performing loans. The outcome was a 36% rise in revenue and a 39% jump in profit in 2021.

Expect to see more in the way of self-sufficient super-apps, as this is precisely the case study most fintech startups are eyeing right now.

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Social Security numbers are a privacy liability

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Social Security numbers are a privacy liability

Hundreds of millions of SSNs have been leaked online already, but a privacy-focused identity solution could help fix the problem.

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UK

University of Essex students named as victims after car crashed into building in Colchester

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University of Essex students named as victims after car crashed into building in Colchester

Four university students who died when a car crashed into a building have been named by Essex Police.

The crash happened at around 4.40am on Saturday morning on Magdalen Street in Colchester.

Police have named the victims as University of Essex students Makyle Bayley, 22, Eva Darold-Tchikaya, 21, Anthony Hibbert, 24, and Daljang Wol, 22.

The university’s acting vice-chancellor Professor Maria Fasli said they “played an active role in our community through clubs and societies” and had “young lives filled with hope, promise, talent, and dreams for the future”.

“Anthony and Daljang were outstanding members of our Essex Rebels men’s basketball first team, Makyle was a talented basketball player who was a member of our BUCS basketball team and Eva undertook several roles in our Essex Blades Dance Club and was active in many other clubs and societies,” she said in a statement.

“Their loss will be felt by their families and closest friends and by all our university community. In classrooms, in halls, in shared moments of laughter and learning – they were part of us, and their absence will be felt profoundly.”

The scene of the collision in Colchester.
Pic: Essex Police
Image:
The scene of the collision in Colchester. Pic: Essex Police

Professor Fasli said the university would share details in the coming days of “a time and place for our university community to gather in remembrance”.

The University of Essex said in a statement “our whole university is in mourning”, adding: “They touched the lives of so many of us at Essex; their friends, classmates, the teams they played for, and the staff with whom they spent time.

“It is impossible to imagine the loss being felt by their families and many friends. Our thoughts are with everyone who knew them at this terrible time.”

Essex Police asked anyone who saw a black Ford Focus being driven along Magdalen Street or in the near vicinity around the time of the crash, or who has any CCTV, dash-cam or doorbell footage, to contact them.

Temporary Assistant Chief Constable Stuart Hooper said: “I want to extend my condolences to the friends and family of Makyle, Eva, Anthony and Daljang.

“This will be an incredibly difficult time for them and we have specialist officers supporting them.

“Our specialist serious collision investigation unit is investigating what led up to the collision but at this stage we do not believe any other vehicles were involved.”

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Flowers left at scene as community pays tribute to two children killed in hit-and-run crash

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Flowers left at scene as community pays tribute to two children killed in hit-and-run crash

Tributes have been paid to two children who died following a hit-and-run crash in Essex.

Police were called after reports that a boy and a girl were in a collision with a car on Ashlyns in Pitsea around 6.25pm on Saturday and the vehicle failed to stop at the scene.

The youngsters – a nine-year-old girl and a 16-year-old boy – died despite emergency services’ efforts to save them, according to Essex Police.

Around 20 members of the local community, including children, gathered together on Sunday and left tributes, including flowers, at the junction between Ashlyns and Walthams.

One card left by a member of staff at a school read: “I’m so sorry that you have both been taken away, far too young.

“My thoughts and prayers are with everyone that had the joy to know you both, especially your family.”

‘Taken too soon’

Another read: “You were both taken too soon. You will never be forgotten.”

Locals said one of the children was of secondary school age.

A card that appears to have been left by a teacher – alongside a bunch of flowers – paid tribute to “Roman”. It described them as “such a good kid” and a “joy to teach in PE”.

Flowers and a card at the scene paid tribute to 'Roman'. Pic: PA
Image:
Flowers and a card at the scene paid tribute to ‘Roman’. Pic: PA

Essex Police have arrested a man and woman on suspicion of causing death by careless driving and failing to stop at the scene.

Both are still in custody.

Read more:
Murder arrest 20 years after woman found dead
‘Idiot’ driver jailed over boy’s injuries
Man arrested over ‘Koran burning’

Police are appealing for any CCTV, dashcam or other footage related to the incident to contact them.

In a statement on Saturday, Essex Police’s temporary assistant chief constable Stuart Hooper said: “My thoughts are with the friends and family of the girl and boy who have died this evening.

“Specialist officers are supporting them at this truly unimaginably difficult time. Our officers will be carrying out inquiries in the area this evening to establish the circumstances which led up to the collision so if you saw anything or have any information please get in contact.”

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