Fintech, a multifaceted industry, has gained considerable popularity, with banks and insurance companies leading the charge for its growth. Eager to acquire any promising technology, these players have greatly influenced the valuation of startups entering
the market. However, the fintech bubble has been burst by the COVID-19 pandemic and the subsequent economic uncertainty. Global fintech investment fell by 30% to US$164bn last year, according to KPMG's Pulse of FinTech
The issue is not the lack of money. Instead, it's the need for valuation correction of early and mid-stage investments before series A. Startups must understand that their projects are not automatically worth millions just because they have a fantastic presentation.
There will likely be a more standardised flow of investment, and valuations of ten million euros may be closer to one. This change will be a struggle for startups as they may believe their project is worth more than it actually is.
Despite the ongoing economic uncertainty, analysts predict that fintech funding will remain significant, although it may not reach the same levels as in previous years. So, which startups and founders are likely to receive money in 2023?
Focusing on the back-office
What has become very prominent in the market in the last year is a decline in the number of neobanks offering a comprehensive banking solution, such as Revolut. Only 5% of neobanks today are thought to be breaking even, according to Simon-Kucher & Partners
report. On the other hand, there is still a demand for players who aggregate loans and mortgages, which is related to document and information handling complexity. For example, when applying for a mortgage, storing and managing all relevant information
is necessary. Accordingly, the growing demand for technology enables data standardisation in back-office processes. In addition, using and tracking alternative data from different documents in the back office are likely to become a significant trend. This
market may be more localised.
Raising financial knowledge and inclusion
Despite changes, there is a growing movement to increase financial knowledge and standards in underdeveloped countries. As 1.4 billion adults in the world remain unbanked—more commonly women, the less educated, poor and rural populations—more dedicated,
multi-stakeholder strategies are needed to achieve universal financial inclusion. It creates a need for alternative scoring methodologies for assessing creditworthiness. The latest
Global Findex data shows that financial inclusion is on the rise, with 76% of the global population having a bank account in 2021, up from 51% in 2011. The pandemic boosted the mobilising financial
inclusion efforts. As investors, we see progress in this area with more investment in alternative scoring methodologies and other relevant fintech solutions.
While robo-advisors are a good solution for many alternative long-term investments instead of pension funds or self-building for the future, we haven't seen significant growth yet. However, there might be a trend in this area, as established players in the
traditional asset management industry, such as BlackRock and Fidelity, have entered the market by offering their platforms and investment options. Another emerging trend is the increased focus on environmental, social, and governance (ESG) investing. Many
robo-advisors now offer ESG investment options for clients who want to invest in companies prioritising sustainability and social responsibility.
New solutions and KYC/ AML for Insurance
Compared to finance, insurance is far less developed. However, with the emergence of pay-as-you-use or pay-as-you-are-risk insurance, which is a mix between micro-insurance and traditional insurance, there is more and more demand for new solutions. Insurance
companies are adopting technology to reduce the risk in their products, such as helmets with a light that goes on if you fall down or small machines on cars that monitor how you are driving.
Insurance also faces a serious issue with digital identification (digital ID) and Know Your Customer (KYC) processes to enable remote onboarding or fraud detection. As customers increasingly use multiple digital platforms, there is a growing need for interoperability
between different digital ID and KYC systems. Insurers also need to ensure that they handle this data securely and comply with privacy regulations.
Fintech for climate
As the intersection of fintech and climate tech continues to evolve, new technologies in this area will likely be in demand. For instance, with the growing focus on reducing carbon emissions, there is a need for solutions that can accurately track them across
supply chains or tools that can provide real-time monitoring of emissions from buildings and other sources.
As climate change continues to impact businesses and communities, there is a growing need for technologies to assess and manage climate risks - from providing real-time data on weather patterns and other climate-related events to that which can help businesses
and communities prepare for and mitigate the impact of these events. For example, in the Startup Wise Guys fintech batch, we had an insurance micro and distributor focused on climate events, as well as a company that specialised in analysing data to help clients
decide whether to have the proper insurance and set prices accordingly.
Moreover, as investors increasingly look for opportunities to support sustainable and environmentally responsible companies, there is also a growing demand for technologies that can facilitate green finance and investing.
A unique offering is the best choice
Investors indeed consider the market's potential and projected growth when evaluating fintech startups. However, it's important to note that the selection process does not base only on more significant trends alone. A startup with a unique offering, such
as a personal finance management tool for children, maybe a slight trend, but it could still be an excellent idea.
Ultimately, investors seek founders who know their business model and can clearly explain their ideal customer persona, anticipate the sales cycle, design an effective sales funnel, and be aware of the legal framework in the geographies they operate. If
founders can convince investors that their service or product is significantly cheaper and faster than competitors, they are more likely to attract investment.