Marking my 2022 Fintech predictions
Twelve months is a long time in tech. It was in 2022 at least…
As is traditional, I am going back to my 2022 predictions from the start of last year and seeing how right or wrong I was.
It has been an ugly January for public tech companies and we are starting to see this spread to late stage private market valuations where multiples are no longer aligned…The obvious consequence is that late stage fundraising is going to be harder and valuations are going to be lower. Certainly for the next few months.
Correct but underestimated. Public share prices in fintech and insurtech have continued to fall, although they have stabilised or recovered in profitable companies such as Wise and Adyen. Private valuations and fundraising as you know have got a lot harder, and this is not going to change in a few months. We still massively believe in the potential to make finance and insurance more efficient and effective but startups are going to have to make this happen in more capital efficient ways
The payments tech stack moving from lock-in with one provider to a payments automation framework such as Primer
This is happening, with Primer winning leading global clients and partners. However change in payments doesn’t happen overnight, as companies which tried to artificially accelerate it such as Fast and Bolt have discovered. Even Stripe expanded too fast and had to lay off 14% of its workforce. Payments is an area where new billion dollar revenue companies will continue to be built, but change takes time.
Open banking payments (finally) taking off across Europe, creating an opportunity for a payments-focused player who can handle all the edge cases, refunds etc.
No inflexion point here in 2022 but continued growth. Open banking in the UK has found its place in certain use cases such as account top-ups, as well as large ticket payments such as cars purchase, but has not taken off for general retail. Gocardless announced a renewed focus on open banking alongside its $312M fundraise in Feb 2022. The EU outside Nordics has been fairly slow, although SEPA instant starting to make some headway
The financial operations of large companies. So much still to be done here. My prior article on this. Our recent investment in the sector: Numeral
This continued to be a focus area for VCs and founders in 2022, with a number of startups including Numeral making strong progress. My colleague Solène wrote a great round up on the CFO stack in July. Companies such as Payfit and and Agicap are reaching real scale. There has been some excitement on usage-based billing with companies such as Sequence, Metronome and M3ter. Treasury management has been an increasing area of focus for CFOs as interest rates rise, which has been a positive for companies such as Treasury Spring and Flagstone.
Employers becoming more involved in the financial lives of their employees, going beyond wage streaming into a range of products where they can get their employees a better deal (lending, insurance etc). Payroll innovation as part of this.
Demand for this has increased given the strain on people’s finances. The dozens of startups that launched in salary streaming are consolidating. The remaining leaders such as Wagestream and DailyPay are indeed expanding beyond earned wage access to broader financial wellness. We are also seeing demand for financial help expanding from frontline workers to office workers with services such as Otto Finance and Octopus MoneyCoach.
Financial wellness and fairness, helping people make the right financial decisions and improve their financial situation over time e.g. Cleo
On the other side of the same coin you have B2C financial wellness providers such as Cleo. Again this area has seen strong growth in 2022, and it is exciting to see what impact further advances in AI could bring to Cleo’s conversation with her users.
Driving cost out of the insurance stack, either as a ‘bare metal’ insurer, SaaS, claims, or attacking brokerage..
No major new players here that I am aware of. The trend in insurtech more seems to be towards working with brokers, for example for successful cyber insurers such as Coalition and Corvus. There has been a focus across insurtechs on loss ratios, claims, cutting out costs and showing clear path to profitability. The market doesn’t show much confidence in the public insurtechs’ ability to achieve this but the best private insurtechs are making more progress.
Fintech businesses which can be global from day one, levelling the playing field in countries where payments and debt remain overpriced
One hope was that crypto-based rails such as Bitcoin Lightning would enable low cost instant international payments and financial services. Despite 2022 being an “annus horribilis” for crypto Lightning has made steady progress, but is still very small on a global scale. Revolut and others have shown the ability to scale rapidly across many countries but not (yet) fully globally. Lending in particular remains overwhelmingly a country-by-country market.
I plan to expand on some of these with blog posts which will be slightly more frequent over the rest of the year.
Fail on this, I managed three blog posts all year. Fortunately I am able to rely more on my colleagues to write some great content these days.
Overall I was directionally correct for six of eight.
What does 2023 hold?
The funding market is open for fintech and insurtech companies, with plenty of dry powder sitting in funds. Seed funding remains very active. At later stages companies need to show strong unit economics, growth and sensible burn.
We will of course see some high profile bankruptcies or fire sales of large fintechs who can’t get their burn under control, and it is hard to see public markets improving any time soon.
Many of the above trends will continue to hold. A few more areas we are excited about going into the new year:
- Banking as a Service
- The Advice Gap
- Open finance, for example Pensions Dashboards in the UK
- The impact of rising interest rates e.g. on EMIs which can’t easily pay interest
- Embedded finance, probably some VC overexcitement on this last year but there are some compelling use cases and winners will emerge
