The first half of 2024 has confirmed a pattern we began tracking in late 2023: AI-native underwriting is moving from proof-of-concept deployments at early-adopter lenders to production underwriting at mid-market financial institutions. The shift is being driven partly by the improving availability of consented Open Banking data — the coverage and reliability of real-time account data has reached a level where it is a reliable underwriting input rather than an experimental enrichment — and partly by the improving maturity of the ML infrastructure needed to serve credit models at production scale with the audit trail that regulated lenders require. We are now in conversations with early-stage companies that are landing their first enterprise contracts with regulated lenders, not pilots, not trials, but contracts with SLAs and production volumes. That is a different market signal than we were seeing twelve months ago.
The embedded payments consolidation story is playing out differently than we expected at the start of the year. The anticipated consolidation among BaaS providers — where we expected to see mergers or acquisitions reducing the number of platform providers serving the embedded finance market — has been slower than the infrastructure logic would suggest. What is happening instead is a consolidation at the customer selection layer: the early-stage SaaS platforms that launched embedded financial products between 2021 and 2023 with the minimum viable BaaS integration are discovering that the unit economics only work above a certain transaction volume, and that below that threshold the compliance overhead and operational complexity of running embedded financial products outweigh the revenue contribution. Several are exiting embedded finance or dramatically narrowing their product scope. This is healthy for the infrastructure market, as it separates platforms with genuine financial product distribution from those that embedded finance as a strategic experiment.
Compliance technology is the theme where our conviction has strengthened most materially in 2024. The PSR's mandatory reimbursement requirement for APP fraud, which came into force in October 2023, has created immediate commercial urgency around payment fraud detection that did not previously exist in the same form. Financial institutions that previously treated fraud detection as a cost optimisation problem are now treating it as a liability management problem, which changes both the budget available and the urgency of purchase decisions. We are also seeing an increase in FCA supervisory activity around Consumer Duty compliance, with regulated firms being asked to demonstrate that their product governance processes produce good customer outcomes in a documented, auditable way. Infrastructure that automates this documentation and provides an audit trail — connecting product decisions to outcome data — is moving from a nice-to-have into the required vendor stack for regulated firms.
The funding environment for early-stage fintech in 2024 is, from our perspective, more rational than it was in 2020 and 2021 but also more demanding for the specific categories we invest in. Infrastructure companies with genuine enterprise traction are finding a receptive audience among growth-stage investors who are now prioritising revenue quality — net revenue retention above 110%, enterprise contract stability, clear expansion revenue mechanics — over headline growth. The companies in our portfolio that have spent the past two years building enterprise relationships rather than optimising for customer count are entering conversations about Series A and Series B from a position of strength. The ones that chased growth metrics at the expense of enterprise depth are having more difficult conversations. The market is rewarding what we always believed it should reward: infrastructure that enterprises genuinely depend on rather than infrastructure that enterprises are evaluating.