Here’s what’s hot — and what’s not — in fintech right now

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There has been something of a rotation out of certain pockets of fintech that were hyped by venture capitalists last year, such as crypto and “buy now, pay later,” and into less sexy areas focused on generating stable streams of income.

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Financial technology is the hottest area of investment for venture capitalists — $1 out of every $5 of funding flowed into fintech startups in 2021.

But with a recession possibly around the corner, investors are writing fewer — and smaller — checks. And they’re getting much more selective about the kind of companies they want to back.

According to CB Insights, global venture investment in fintech firms sank 18% in the first quarter of 2022.

That’s led to something of a rotation out of certain pockets of fintech that were hyped by venture capitalists last year, such as crypto and “buy now, pay later,” and into less sexy areas focused on generating stable streams of income, like digitizing payment processing for businesses.

So what’s hot in fintech right now? And what’s not? I went to the Money 20/20 Europe event in Amsterdam in June to speak to some of the region’s top startup investors, entrepreneurs and analysts. Here’s what they had to say.

What’s hot?

Companies like Visa, Mastercard and even Apple are paying close attention to the trend. Visa acquired Sweden’s Tink for more than $2 billion, while Apple snapped up Credit Kudos, a company that relies on consumers’ banking information to help with underwriting loans, to drive its expansion into “buy now, pay later” loans.

“Open banking in general has gone from a big buzz word to being seamlessly integrated in processes that nobody really cares about anymore, like bill payments or top-ups,” said Daniel Kjellen, CEO of Tink.

Kjellen said Tink is now so popular in its home market of Sweden that it’s being used by about 60% of the adult population each month. “This is a serious number,” he says.

Embedded finance is all about integrating financial services products into companies that have nothing to do with finance. Imagine Disney offering its own bank accounts which you could use online or at its theme parks. But all the work that goes into making that happen would be handled by third-party firms whose names you might never encounter.

Banking-as-a-service is a part of this trend. It lets companies outside of the traditional world of finance piggyback on a regulated institution to offer their own payment cards, loans and digital wallets. 

“You can either start building the tech yourself and start applying for licenses yourself, which is going to take years and probably tens of millions in funding, or you can find a partner,” said Iana Dimitrova, CEO of OpenPayd.

What’s not?

Got an idea for a new crypto exchange you’re just dying to pitch? Or think you might be onto the next Klarna? You might have a tougher time raising funds.

“The tokenization and the coin side of things we want to stay away from right now,” said Farhan Lalji, managing director at fintech-focused venture fund Anthemis Capital.

However, the infrastructure supporting crypto — whether it’s software analyzing data on the blockchain or keeping digital assets safe from hacks — is a trend he thinks will stand the test of time.

“Infrastructure doesn’t depend on one particular currency going up or down,” he said.

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