Wayne Brown from Alvarez and Marsal and I caught up at the end of 2022 to discuss what happened in 2022 (it was quite the year)… and building on their whitepaper, what is the outlook, and what do they feel the key themes be for 2023.
Read more about their predictions for 2023 in their white paper -> here
Find out more about Alvarez & Marsal-> Here.Interview Transcript
Hi, everyone, I’m here with Wayne Brown. Today he’s a senior director for financial services at Alvarez and Marsal. Wayne, it’s great to see you again. Hope you’ve had a good year. Yeah, I just wanted to suppose you just use this time just to say was have you sort of seen 2022? And sort of a bit of a summary of how you think it’s gone?
It’s been a heck of a year, isn’t it? 22 years or so much, so much happened in this year. And I think that what will three three things I mean, one is with the explosion crypto, and we can just unpack that a little bit. The second one is the change of focus among VCs in particular, around fintechs. And their focus from moving the focus from growth to profit. And the last is just generally the changing environment, how quickly it’s flipped, and now in a completely different macro environment. So it’s just kind of just there, the three takeouts will be for the so the first one with crypto I think probably this time last year, everybody wanted in. And I think really, it’s been found out that all that glitters isn’t gold there. I think there are good use cases for crypto don’t get me wrong, I think blockchain is gone great use cases. And I think that there are some good use cases for crypto but too many people piled in, just like anything that that’s new and shiny, and get speculative buzz bubble. And then, you know, bad things happen. And we’re starting to see bad things happen in the crypto space. So I think that’s the, you know, massive change from where we were last year. The second thing I had kind of linked to that is, is the change of perspective. Around fintechs. And I suppose just technology startups in general, but you know, obviously, I’m Fs background and my focus is on fintech. And clearly a change of of emphasis and an investor sentiment from, from growth, to profitability. And now we’re seeing an array of FinTech Stein to think about, Do I have good runway? What’s my burn rate, can I see a route to profitability in a way that they perhaps didn’t have to before many of them didn’t have to, let’s say that, let off the hook. And certainly, from our perspective, we’re getting more and more involved in fintechs that that want to think about m&a or other businesses that want to get involved in and perhaps want to think about buying a buying a FinTech or partnering with a FinTech, because you have great expertise in there, great technology in there great idea in there, but that route to profitability, was probably longer than now that the environment is letting them. And then lastly, on the on the environment, I mean, just just generally speaking, we’ve we’ve we’ve seen, you know, obviously a drastic change in the interest rate situation, which for banks, you know, changes the emphasis of where, where their profitability, lays, lies and changes the emphasis of what of what what focus they need to place on, on their cost base, but also, generally, the macro environment changes how they need to work with consumers. And what we’ll see over probably over going into 23. And we start to see now but certainly into next year, is the banks that have really worked hard on their forbearance processes and their collections process. I mean, you’ll know this better than anybody, Chris, that, you know, they’ll they’ll, there’ll be an added advantage of some of the newer banks that have perhaps not been through one of these squeezes before. And they don’t have that, that that traditional skill base. So I think it’s going to be really interesting. Now, as we, as we see this changing environment, I really do think that those banks have been through the, the wire with the regulator over the last five, six years around collections and etc, will be in a much better and stronger position, then some other providers, but yeah, I think they’d be my, my three tickets are 22 Do
you think the change of interest rate I mean, that must affect the investment environment for fintechs as well. So I mean, so like the fact that interest rates are higher, I mean, that when people change is like the return that people are looking for is that is that sort of all flowing through there flows through teams and like business cost, isn’t it? And then inflation,
yeah, totally agree. It flows into the multiple of what investors should be expecting when they can you know, they know what they can get from just investing in in Gilson bonds, like that’s the starting point. And everything flows from that. And so when the interest rate goes up the increases expectation of, of the multiple across the board. So yeah, we definitely see that from an investor perspective.
I mean, for me this year felt like it was like two halves and you had the first half of the year, which was we were sort of carrying on ready for the pandemic and the second half of the year is like it feels kind of different. So do you think it’s almost like it’s almost like the, the optimism that we’ve had over the last five years is sort of like changing into realism and That’s sort of how it sort of like we shifted over this year. I mean, is that? Is that how you kind of see? I mean, is that is that where you kind of think around 2023 as well?
That’s a really interesting perspective. I certainly think there’s a lot of things come home to roost in the second part of 22. A lot of the decisions which were made, you know, many of many of them with, you know, with the right, the right spirit have consequences. And nonetheless, those consequences of so come home, I think it’s a very good point to think about is there’s there’s two halves, and how different it’s been in the second half to the to the first time.
Yeah. What’s your perspective for 23?
Yeah, 23. I think there’s some really interesting things that are happening 23 I think, first of all, if Metaverse was the sort of buzz phrase fit for 22, I think AI, in particular, generative AI is going to be the buzz phrase for 23. You might have already heard about some bits and pieces around that. And it’s really intriguing. And I think AI NFS is going to be intriguing, particularly in relation to the new registration around consumer duty, and what can it do in terms of interpreting and big sets of data to help banks create products, create services that will, that will, that will be able to service customers in the right way, which is the which is precisely the the regulation, I think we will start to see open finance really mature. I mean, we’ve we’ve, we, we’ve we sort of say to every year, but I really do hope that this year, we will we will see. And I think that there are now different use cases for using open finance data and in really interested in usable ways that perhaps that weren’t before. And one of those might be the income expenditure check and collections and all the bits and pieces like that, or alternative routes to underwriting in a different way. So I really do think that that might might be something we see. But it seems the race for a super app in the in the West is really hotting up, we’ve seen in China overseas is huge with WeChat and others. But in the West, we’ve never really cracked it. revolute seven and girl Tinkoff in Russia is having a girl. And if I’m honest, I kind of sneaky feeling that that’s what Elon Musk is up to at Twitter, as well. You know, sooner or later, I think that that that that will happen. green finance, despite, you know, the current economic climate is not going to go away. And we’ll see. We’ll see an increasing need for good quality data there. Because it’s very easy to be accused of greenwashing. So you need excellent digital data capability to be able to evidence your supply chain and where you’re investing your money. So I think that was maybe the last thing I think that hybrid working is now obviously it’s here to stay. And I think that maybe 22, we will say is it. And I think now as we head into 23, we say yes. And what what does that mean? And then from it from a digital perspective, which was where I play, I think it means a lot in terms of collaboration. And the way that work is actually done is going to see that come come to come to the fore a lot
more kind of saying it sounds like we’ve gone from almost like these big ideas like like the metaverse was the big idea last year. And we all had these visions, almost like these visionary ideas. And now we’re sort of talking about the practical applications of ideas that maybe even game the year before. And so we’re now into almost like a doing mode. So next year is going to be a doing year. How do we do that to create profitability, whereas in the previous years, we’re in this sort of expansion, sort of visionary kind of garage? I mean, do you think now’s the time to sort of maybe invest in these things for in a small way, because now now that technology and understood, because in five years time, they actually might become bigger? And that’s when we really see the growth?
Yeah. Digital? Yeah, there’s two points you made there. So one is that I think is around kind of where where does people spend in innovation spend? The second one is what happened the metaverse on the first point. I mean, some let’s face it, some businesses are just going to stop innovation spending. So huge mistake, what they should be redirecting, redirecting innovation spend to practical, tangible things to your point, actually taking action. So actually doing things that are gonna affect the improve their customers next year, or improve their cost position next year. So that I think that you’re quite right, we’ll start to see some tangible focus on real things. And then the second part in the metaverse, I mean, I am a big proponent of the metaverse, as you know, and I do think that that is is the future of the internet. But like all new things, it gets hyped up and I think that last last year was was the hype year and people perhaps got carried away in one or two areas. But I really do believe that is the future of the Internet. How long how and where people invest their money that you know people need to be just kind of careful where they do it. Probably get into it in a in a sensible and small way just to Testing out. I mean, maybe start out internally thinking about their, their induction programmes or their training programmes, and they can start to bring their own stuff in before they start to, to, to widen it out. And doesn’t all have to be about the headset, it can be wider stuff than that as well,
when the certain sounds even around sort of digital, right? So if you’d been investing in digital sort of five years ago, or you mentioned even around the banks, looking at forbearance, forbearance plans and the systems that went around that, I mean, if you sort of were all sat there almost saying like, if we only we did this three years ago, we’d be in a much better position. Now. I mean, and you’re saying that some of the people have done that you think they’re going to be good position for next year? I mean, is that not that’s not true with some of these other technologies, you don’t have to spend a fortune you just have to keep your toe toe in the water to kind of stay Heisler certain extent. Yeah,
precisely. And we just need to be much more discerning in, in where you place your investment, and also need to be much more open minded about engaging with the wider ecosystem. So you know, there are plenty of FinTech players out there that would be willing and ready to partner with businesses to, to in many of these areas that don’t have to be something that they do themselves. But yeah, quite rightly, as you point out, they’re, they’re the ones who are the ones who maintain the level of investment will be the ones who get the payoff in two or three years time tip,
but, but it does sound like sound like next year is gonna be a very sort of practical sort of go and do things kind of year. So I mean, I suppose we’ll see. We’ll see how it sort of plays out. So Wayne Wayne, thanks very much for making the time. I appreciate it. I know it’s very busy at the end of the year. So I appreciate you taking the time out. It’s been great. I was good to chat, Chris. All the best
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