Jeff Bartle He is the Chairman and Managing Director of The Hamptons Group, a private investment and strategy advisory firm headquartered in Miami.
Fintech emerged seething in 2021 when it comes to finance. While the venture capital numbers have fallen in 2022 – the trend is expected to continue into 2023 – the downturn is more about strategy than the perceived weakness in the industry.
The fintech venture capital market for 2023 looks strong, but likely won’t repeat the record results of 2021. There are many of the same drivers for growth, but investors are looking for early-stage deals that require less investment per opportunity.
What prompted meteoric venture funding for Fintech in 2021?
In 2021, fintech solutions were an investment of choice for venture capitalists — so much so that financial services overall account for more than $130 billion in project financing, making it the leading sector for that metric. Moreover, investment in fintech ventures grew by more than 175% from 2020 to 2021, with fintech applications, embedded services, digital payments increasingly growing, and “buy now, pay later” platforms.
All of these drivers have a few things in common. First, they support comfort. Individuals and businesses want to move faster in their purchasing and other payment decisions, and handle transactions in real time from computer screens and devices. Second, they support security. Smart consumers know the power of data and are looking for financial solutions that allow them to take advantage of the Internet without putting accounts or personal information at risk. Finally, they create flexibility. As the economy wanes and weakens, and external forces — such as pandemics or supply chain issues — add stress, businesses and consumers need options to make payments, get financing, and manage cash flow.
What will happen with FinTech financing in 2022?
The drivers from 2021 – convenience, security and flexibility – are still prevalent in 2022, even though total fintech investments are unlikely to reach their highest levels in 2021. However, fintech investors are still interested, but they are changing strategies to match. With the ebb and flow of the markets.
Venture capital looking into early stage deals. Startups and other smaller, newer fintech companies are more resilient and can withstand market conditions with rising interest rates and other issues.
It should also be noted that the biggest deals are heading not only in Asia - specifically China - but in other regions around the world, including Latin America, Europe and Africa, a shift from previous years.
Some recent fintech news points to this global shift. For example, TeamApt of Nigeria completed a funding round in August that brought in a significant player in QED Investors. The deal is QED's first investment in Africa. In addition, recent news from India indicates that fintech assets in that country are growing and are expected to reach $1 trillion in 2030, demonstrating growth outside previously record areas.
Where is FinTech Investment Heading in 2023?
Growth is still happening and with it venture investments; However, it is likely that in 2023 fintech companies and venture investors will look for stable moves rather than aggressive ones. If the high-risk and rewarding short games lead to 2021, 2023 will see more conservative approaches to the long games.
Where will growth be in 2023, and what can investors expect in terms of trends? Current trends are likely to continue to drive development in this field.
• Significant growth paths for ESG-focused fintech products and companies. ESG funds saw record inflows in 2021. As investors, governments and consumers continue to put pressure on ESG missions, these numbers will only rise. ESG fund investors must hunt for opportunities and assets that match those missions, as transparency around investing in ESG becomes more common and even mandatory in many cases.
• Make deals in underdeveloped areas. On every level, fintech has been a tool of financial liberation in recent years. From applications and investment structures that create more access for consumers at all income levels to deal-making in underdeveloped regions, fintech is driving an almost revolutionary development. As a result, investors can expect to see more disruption in traditional markets and investment practices in 2023.
• More mergers and acquisitions. The technology space continues to evolve at a more than robust pace, leaving behind a lot of opportunities for investors in the wake of innovation. It has supported this and will continue to support healthy M&A activity, with startups of all kinds selling off into the fintech markets.
• Continuous rise of the integrated services. Consumer demand for convenience and flexibility has led more companies to include financial services in their operations. Service order applications, investment and savings applications, and automated billing solutions are a few examples.
In general, the future of fintech is bright. Although the total funding of 2023 may not rival the growth of 2021, fintech remains a top priority for venture capital investments.
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