5 things venture capitalists are considering in fintech
New businesses are springing up with a way to make finance easier, faster, and more efficient every day.
With the rise of mobile technology and the integration of social media into everyday life, companies have been able to offer new services to eliminate some of the drawbacks people face when it comes to financial services. .
Venture capitalists know this too, which means they’re now taking a close look at the FinTech industry.
This article discusses five of the developments venture capitalists are watching in fintech.
5) Blockchain technology and crypto assets
Distributed ledger technology, or blockchain technology for short, is a way to record transactions and track goods to improve security, eliminate reliance on third parties, improve machine-to-machine communication, and reduce prices. This category also covers cryptocurrencies such as bitcoin or stablecoins.
According to Maxim Manturov, head of investment research at Freedom Finance Europe, “2022 venture capital investments in fintech are likely to incorporate more blockchain technology, with the appeal of decentralized finance and the greater potential of smart contracts and peer-to-peer loans that are entirely without intermediaries or third parties, thus increasing the potential of fintech. “
“The blockchain ecosystem is fueling the growth of future unicorns by providing safer, cheaper, and faster ways to process cross-border payments. Venture capital investments will shift more towards crypto adoption as most of the household names in the market catch up with the trend. and respond to consumer preferences. We expect large scale adoption of crypto for both SMEs and large enterprises, ”added Arvind Nimbalker, Global Product Manager at Tribal Credit.
4) Social impact
Social entrepreneurship and innovation have been around since the late 19th century, but they have grown in popularity as companies realize how much their actions can influence society as a whole. In fact, a recent INSEAD Business School working paper found that social enterprises “can do a job more effectively than a central benevolent actor such as government.”
Venture capitalists are interested in fintechs that strive to solve social problems because of this potential for large-scale impact. They are also drawn to companies with a strong mission and purpose beyond profit.
According to Antoine Argouges, founder and CEO of Tulipshare, “Activist investing is an excellent tool for effecting business change, and it can be a viable solution to counter corporate greed and irresponsibility.”
3) underserved markets
Another factor that venture capitalists watch out for is which companies target underserved markets. These are often places with a high density of people that have been underserved by traditional financial institutions, such as the unbanked and underbanked.
“Venture capital firms support underserved markets that can be addressed with the proven models being tested in the US and EU. Asian super apps aside, the Brazilian and Indian markets are the hottest for investments, and mergers and acquisitions. 2022 will see more deals in vertical aggregation in the area of mergers and acquisitions and more investment in underbanked and underserved markets, ”said Eugene Hauptmann, founder of Reactive Lions.
Ultimately, VCs are often looking for startups that can scale quickly and capture the attention of consumers in multiple markets.
2) Environmental action
Another rising trend in fintech is environmental action, and it primarily involves companies working to reduce human impact on the environment. Often times, this takes the form of sustainable or ethical banking, where customers can choose a financial service provider that matches their personal values.
According to Eimantas Matulaitis, Head of Partnerships at Foros, “The emergence of fintech startups focused on sustainability and climate is a natural evolution of the financial sector. just numbers in your account, but more of a force for so many good things. These startups are trying to do essential work to save our environment and make our societies more inclusive. “
The concept of neobanks is one of the most important categories to gain traction with venture capitalists. These are banks that were designed from the start to be digital only; they often have a very user-friendly application and no physical branch.
“We see neobanks as having the greatest potential because they still allow generating big checks and ensuring quality margin metrics through a whole range of additional services,” said Dmitry Smirnov, General Partner at Flint Capital .
The bottom line
Venture capitalists are keeping a close watch on fintech, and private investment in the sector topped US $ 75 billion in 2021. This trend is likely to continue in 2022, with VCs looking for startups they believe could become industry leaders.