Monetary expertise is the most well liked space of funding for enterprise capitalists — $1 out of every $5 of funding flowed into fintech startups in 2021.
However with a recession presumably across the nook, traders are writing fewer — and smaller — checks. They usually’re getting way more selective in regards to the sort of firms they wish to again.
Based on CB Insights, world enterprise funding in fintech companies sank 18% in the primary quarter of 2022.
That is led to one thing of a rotation out of sure pockets of fintech that had been hyped by enterprise capitalists final yr, similar to crypto and “buy now, pay later,” and into much less horny areas centered on producing steady streams of earnings, like digitizing cost processing for companies.
So what’s hot in fintech right now? And what’s not? I went to the Cash 20/20 Europe occasion in Amsterdam in June to talk to among the area’s high startup traders, entrepreneurs and analysts. Here’s what they needed to say.
What’s hot?
“I think we’ll see a next generation of fintechs emerge,” said Ricardo Schafer, partner at German venture capital firm Target Global. “It’s a lot easier to build stuff.”
Niche industry buzzwords like “open banking,” “banking-as-a-service” and “embedded finance” are now in vogue, with a slew of new fintech firms hoping to eat away at the volumes of incumbent players.
Open banking makes it easier for firms that aren’t licensed lenders to develop financial services by linking directly to people’s bank accounts. Something that’s caught the eye of investors is the use of this technology for facilitating payments. It’s an especially hot area right now, with several startups hoping to disrupt credit cards which charge merchants hefty fees.
Companies like Visa, Mastercard and even Apple are paying close attention to the trend. Visa acquired Sweden’s Tink for more than $2 billion, while Apple snapped up Credit Kudos, a company that relies on consumers’ banking information to help with underwriting loans, to drive its expansion into “buy now, pay later” loans.
“Open banking in general has gone from a big buzz word to being seamlessly integrated in processes that nobody really cares about anymore, like bill payments or top-ups,” said Daniel Kjellen, CEO of Tink.
Kjellen said Tink is now so popular in its home market of Sweden that it’s being used by about 60% of the adult population each month. “This is a serious number,” he says.
Embedded finance is all about integrating financial services products into companies that have nothing to do with finance. Imagine Disney offering its own bank accounts which you could use online or at its theme parks. But all the work that goes into making that happen would be handled by third-party firms whose names you might never encounter.
Banking-as-a-service is a part of this trend. It lets companies outside of the traditional world of finance piggyback on a regulated institution to offer their own payment cards, loans and digital wallets.
“You can either start building the tech yourself and start applying for licenses yourself, which is going to take years and probably tens of millions in funding, or you can find a partner,” said Iana Dimitrova, CEO of OpenPayd.
What’s not?
Got an idea for a new crypto exchange you’re just dying to pitch? Or think you might be onto the next Klarna? You might have a tougher time raising funds.
“The tokenization and the coin side of things we want to stay away from right now,” said Farhan Lalji, managing director at fintech-focused venture fund Anthemis Capital.
However, the infrastructure supporting crypto — whether it’s software analyzing data on the blockchain or keeping digital assets safe from hacks — is a trend he thinks will stand the test of time.
“Infrastructure doesn’t depend on one particular currency going up or down,” he said.
Investors see more potential in companies making it easier for people to access digital assets without all the knowhow of someone who trades cryptocurrencies and nonfungible tokens every day — part of a broader trend called “Web3.”
When it comes to crypto, “the areas that most interest us today are areas that we have an analogue experience to in classic industries,” said Rana Yared, a partner at venture capital firm Balderton.
As for BNPL, there’s been something of a shift in the business models VCs are gravitating toward. While the likes of Klarna and Affirm have seen their valuations plummet, BNPL startups focused on settling transactions between businesses are gaining a lot of traction.
“Growth in B2C [business-to-consumer] BNPL is slowing … and regulatory concerns could curtail growth,” said Philip Benton, fintech analyst at market research firm Omdia.
Business-to-business BNPL, on the other hand, is “starting from a very low base” and therefore has “huge” potential, he added.
