2021 was a transformative year for fintech. What felt like a corner of the technology industry a decade ago, is today the largest funded category globally: fintech received over $130b in capital representing 20% of all capital invested in 2021. Exits too were on the rise: there was a 3x increase in number of companies going public vs 2020.
So the natural question is what will 2022 bring us?
I asked readers of this column and friends in the fintech industry for their predictions. Responses spanned various topics, including shifts in financial access, new product creations, and new industry dynamics. And of course Web3.
I’ve shared them below, as well as one from me about the future globalization of the fintech movement.
The march for greater financial access will continue
Fintech continues to have a huge opportunity to drive financial inclusion and have impact on consumers’ day to day lives.
In countries where there is a banking oligopoly (Canada, Mexico, others), competition and innovation are inherently suppressed. The oligopolies will innovate amongst themselves to support their own market position, but any innovation that threatens this position may be ignored or countered. This is not often in the best interest of citizens who want better convenience, choice, rates, terms, lending, etc. This creates a rich opportunity for neobanks and others to offer better products to consumers to manage their financial welfare and to scale. These products will change the game in these markets and will have or earn the support of the people and regulators when the benefits to citizens are made apparent.
– Andrew Harrison, Managing Partner, Section 32
We will finally have a way of moving money around Africa that is as ubiquitous and as fast as WhatsApp and almost as cheap.
– Sid Mofya, Executive Director, Draper Venture Network
New and more specialized products will be created
The first generation of fintech products were general solutions. A range of more specialized tools are on the way.
“Toast for long-tail of SMEs”—We will see vertical specific software & payments solutions for everything from trucking to barbers.
– Sarah Morgenstern, Venture Partner, Flourish Ventures
Startups will be investing in interoperable customer identities underpinned by both Open Banking and crypto use cases. The excitement around the potential for Social Auth championed by Facebook ten years ago will be manifested once again, but this time by fintech players. Customers want their financial identity to be transferred seamlessly and securely across the web. 1 Click Checkout tools and crypto wallets will be important battlefields to watch.
– Austin Arensberg, Senior Director, Okta Ventures
The industry will see greater consolidation & collaboration
With the amount of venture capital funding entering the industry, there is more competition for attention among customers. At the same time, in many places growth is slowing at the later stage. In this new environment, M&A will become a key strategic option.
M&A will be the pillar of board discussions and strategic growth opportunities next year. As we’ve seen in prior cycles, as organic growth slows inorganic growth becomes increasingly a focal point for management teams, especially those flush with capital (and see massive TAMs). Scale still remains critical to “winning” a market, so hopefully more companies see the path for 1+1=3++.
– Matt Streisfeld, Partner at Oak HC/FT
There will be a consolidation of growth stage fintechs as market leaders look to M&A to accelerate growth and expand markets, while some later stage companies have trouble hitting revenue milestones to justify lofty valuations and look to M&A markets for soft landings.
– Mark Batsiyan, Co-Founder and Partner at Inspired Capital
At the same time, incumbent financial institutions are looking to expand their solution set and modernize their tech stack. We may see more open innovation and industry collaboration.
As digitization continues its exponential growth, we’ll see more and deeper collaboration between fintechs and corporations who are now moving towards completely symbiotic relationships. Rather than being seen as “disruptors” or competitors, corporate leaders are now seeing fintechs as key strategic partners in the path to digital transformation which will create more flexible and innovative business models, at scale, for both sides.
– Denis Barrier, Co-Founder and CEO, Cathay Innovation (the venture capital fund where I work).
Web3 will rise
There is consensus web3 is on the rise and will create rich new opportunities.
This will be the year that many (certainly not all) incumbent financial institutions take digital assets seriously enough to start spending money on capabilities. In most cases, this will mean compliance, monitoring and accounting-related software, but it will also include commercial contracts for white labeled offerings from third-party providers (e.g. Nydig, Paxos, ZeroHash, etc…).
– Dan Rosen, Founder and General Partner, Commerce Ventures
“In 2022, innovations in the web3 wallet ecosystem will force traditional financial services companies (think banks, credit unions, etc) to provide new options about where and how customers keep their money digitally. The line between investments and savings will continue to blur.”
– Ambar Bhattacharyya, Managing Director, Maverick Ventures
Financial and Insurance Technologies will increasingly blend blockchain and “web3” together. [For example] a number of DeFi new entrants are likely going to take the opportunity to dislodge neobanks & challenger insurers with more differentiated products leveraging on blockchain. This opens up an even broader opportunity than just the decentralization of monetary flow, as a deeper reconfiguring of credit scoring, identity verification and fraud prevention could be powered by web3.
– Gen Tsuchikawa, Chief Investment Manager, Sony Innovation Fund
Parting thought and final prediction
Taking a step back on these predictions, what’s clear is that there is both an ocean of opportunity for the industry and some challenges ahead. New product categories are set to emerge. At the same time, slowing growth rates may show some consolidation.
As a venture capitalist, I’m cursed with being perennially optimistic. And thus unsurprisingly, my own prediction is about the continued global opportunity for fintech. For context, in 2021 we saw the rise of fintech unicorns around the world. Most of that action has been in emerging markets. At the beginning of 2021, Africa had one unicorn. Today it has 7. The six additions were in fintech. LatAM saw the historic IPO of Nubank. Europe was the source of some of the largest financings.
So here it is: I expect we’ll continue seeing an acceleration of fintech players around the world, leveraging the innovation supply chain, and by creating industries. I believe we’re still only in the early innings of this movement, particularly in more nascent startup ecosystems.
What else would you predict?