If 2021 was the golden year for fintech fundraising, with $130 billion invested in financial services startups, 2022 was the year of the major pullback. In the year ahead, fintechs will focus on profitability and building trustworthy, more personalized financial products.
Companies that tackle enduring problems like improving transparency, personalization, access, and affordability will continue to thrive despite market conditions. The themes for startups this year are tightened scopes around purpose-built products that better serve customer needs.
Here are our predictions for the coming year:
- Choppy Waters: Many fintech startups that raised significant sums of money lacked product market fit and attempted to scale with excessive burn. These companies will struggle to raise capital at their previous valuations in the coming year. Expect to see down rounds, recapitalizations, and business closures altogether.
- Number Crunchers: Generative AI has opened the gates to new ways that data can solve problems in real time. Large language models will leverage company data to reduce risk and streamline manual processes. This will generate massive efficiencies for workers and further enable the digitization, personalization, and distribution of financial services.
- Vertical Lines: Fintechs will pursue verticalization to better target and service diverse customer bases, with big opportunities in non-digitized industries like manufacturing, construction, insurance, and healthcare. This will unlock opportunities to build verticalized Central Nervous Systems that tie together software, financial services, and marketplaces.
- Identity Crisis: Fintech becoming the dominant paradigm for financial services has resulted in heightened fraud as scammers capitalize on the evolution of finance. New services like FedNow will be prime targets, and solutions like orchestration platforms and tokenization will emerge to make consumer identity verification more secure and scalable.
- Young Bucks: Gen Z already makes up >30% of the global population and is beginning to enter the financial system. We will see financial services adopt new approaches to cater to them with things like social integrations, gamification, automated finance, and transparent pricing.
- Block Busters: With the collapse of companies like FTX and BlockFi, the next generation of blockchain startups will move away from speculative business models in favor of real-world use cases. We will see broader adoption of Web 2.5 use cases that larger, more traditional businesses are open to adopting, like cross-border payments, identity, and verification.
- Savings & Hone: Consumers will be driven away from traditional financial institutions towards tech-enabled financial services aligned with their unique needs, such as wealth management for doctors or modern banking for low-income populations. These models will be more full-stack with multiple profitable revenue streams as interchange-only revenue models are proving to be unsustainable.
- Plastic Surgery: Credit card networks have taken advantage of merchants for decades, using fees to provide their own rewards and abstract consumers away from the customer experience. New solutions will arise that put loyalty points back in the hands of merchants, spurring the adoption of merchant-centric digital wallets.
- Monetize This: Embedded infrastructure will develop beyond basic banking services to include payments, insurance, and lending. New embedded contextual data within the underwriting framework will help delight customers, improve monetization for SaaS platforms, help drive financial inclusion, and help the development of new whitespace categories like the move to net zero.
- Risk Rewards: From the pandemic to cyber attacks to climate change, businesses need new solutions to help mitigate crises and strengthen their foundations. New digital insurance solutions that tech-enable traditional manual processes within the insurance framework will arise that improve underwriting, distribution, and experience, particularly in areas of new emerging risks.