This is shared view by Gustav Koborov on the Fintech trends until the year of 2033.
Fintech funding indicators, deals, and new unicorns have all experienced a drop, taking the market back to pre-COVID levels.
According to the State of Fintech Global | Q3 2022 report, fintech funding in Q3'22 was $12.9B, a 64% YoY drop, and the lowest since Q4'20. The number of $100M+ mega-round deals also decreased to 19 - the fewest since Q2'18. New unicorn births were down to only six, the lowest since Q2'20.
The decrease in funding could be due to investors waiting for market stabilization or the current market decline of fintech stocks. Additionally, new fintech projects with a unique selling proposition are decreasing, and regulations have become tougher.
Investors are waiting for the situation to stabilise
- Investors are holding onto their capital and waiting for the economy to stabilize, as it has moved toward a recession.
- Plummeting tech stock prices in early 2022 have made investors hesitant about funding fintechs.
- Many startup companies that have become publicly listed since 2020 are being traded well below their IPO prices.
- Investors seem to be staying away from growth stocks in the fintech sector at present.
- The ongoing volatility of the market and the decline in the valuation of fintech stocks have made company owners cautious about going public.
- Some investors are demanding that startups lower their IPO due to the drop in fintech stocks.
- Chime has delayed its hotly-awaited IPO due to fintech stocks being 40% lower than they were in October of 2021.
- The ongoing war in Ukraine has had a huge impact on the global fintech sector, with investors shying away from spending big.
The market is stabilising & the boom of 2021 is over
- The record increase in funding and birth of new unicorns in 2021 was a reaction to the economy bouncing back after a COVID-impacted 2020.
- In 2021, investment in the global fintech industry was more than double than levels seen in 2020, with $132 billion being raised over the course of the year.
- Any boom is often short-lived and caused by a specific situation in the market.
- The fintech market growth seen in 2021 has returned to the previous level, indicating that the boom is over.
- The number of new interesting fintech projects with a unique selling proposition (USP) is gradually decreasing.
- Opportunities to invest still exist in emerging areas such as open finance and blockchain, crypto exchanges raising capital, and investment by large firms into new technologies or covering special regions.
- However, these opportunities are much rarer and primarily focused on filling gaps for specific customer demands or markets.
- Customer demand is not currently growing due to finances, instability of the economic/political situation, instability of crypto (for crypto products) in general, and because basic consumer needs are being met by existing offers.
Regulations have become tougher
- Regulators in the UK and EU are promoting their countries as fintech hubs and attracting funding and startups through creating an environment that entices them.
- Sandboxes have been created to test innovative fintech solutions, but despite openness to new companies, regulations have become tougher.
- Obtaining a Payment or E-Money institution license has become more difficult due to new requirements aimed at controlling fintech companies more carefully.
- The MiCA regulation is a game changer as it represents the first-ever licensing regime for crypto wallets and exchanges to operate across the EU and imposes reserve requirements on stablecoins.
- These regulations will stabilize the market, make it more reliable, and transparent in the wake of global crashes like FTX.
- Partnering with BaaS-providers to connect to financial services is not easy as they only work with companies that have a good client base and a clean reputation, given the high level of regulatory control in the industry.
BaaS | fintech/banking with tech companies merging
- BaaS is a continuing trend that's changing its "face" and becoming easier to connect from a technological perspective.
- Fintechs merge with technology companies to expand capabilities and provide comprehensive, easier-to-use solutions.
- Good examples of fintech-tech mergers this year include Chetwood Financial acquiring Yobota and SoFi Technologies acquiring Technisys.
- Partnerships between technology companies and fintechs, such as Advapay and BaaS-services, make the implementation of a ready-made IT system with integration of a fintech company possible.
- The transformation of the financial landscape through the digital ecosystem has led to a trend of partnerships, mergers, and collaborations.
- Innovations in technology have driven this change, necessitating global digitisation and causing more mergers and partnerships.
- Companies see the purchasing of innovative products and teams as being safer, faster, more cost-effective, and simpler than taking the in-house development route.
- Some sizeable acquisitions this year include Thoma Bravo acquiring Bottomline Technologies, Abrdn acquiring Interactive Investor, Fiserv acquiring Finxact, and UBS buying Wealthfront.
Full Report: HERE (Finextra)
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