The fintech sector is in a constant state of flux, with new innovations and legislations coming out almost daily. Fintech startups are being funded at an unprecedented level too, capitalizing on the “startup boom” currently happening across industries. Which sectors have been attracting most startup funding?
The “what were the supply factors that contributed to the recent emergence of fintechs” is a question about what led to the increased number of startups in the financial sector.
The headlines were stunning for those tracking the investment of new financial-technology businesses in 2021.
According to CB Insights, funding for fintech companies increased to $131.5 billion last year from $49 billion in 2020. In 2020, investors launched 27 fintech “unicorns,” or private startups valued at more than $1 billion; by 2021, there were 157 new unicorns. Exits, whether in the form of an IPO, a merger, or an acquisition by a special-purpose vehicle, increased by 73 percent, providing fresh funds to early investors in those firms to reinvest in new fintech startups. Meanwhile, the Bank for International Settlements estimates that fintech businesses received more than $1 trillion in fresh funding between 2010 and 2020.
“We’re in the early stages of a revolution,” says Jordan Nof, co-founder and managing partner of Tusk Venture Partners, an Innovative York-based investment company specializing on new fintech prospects. “The finest deals I’ve ever done are the ones that solve issues you didn’t even realize you had.”
Mr. Nof’s confidence stems from the fact that numerous innovative company ideas have motivated financial services engineers to seek out entrepreneurial chances by identifying faults or inefficiencies in their industry’s operations. “They’re now receiving the support they need to address extremely large challenges,” he adds.
So date, just a few company sectors have received the majority of fintech financing. Consumer payments have become one of the most noticeable, with startups like Affirm Holdings, AFRM 9.08 percent Block (the parent company of Square) and Klarna shaking up the retail sector. Do you want to purchase a Peloton bike or the most recent Apple device? These days, big brands are partnering with buy-now-pay-later companies to allow customers extend payments over a few months. Consumers enjoy this approach because it is less expensive and more transparent than store credit cards, and companies like it because it boosts sales.
“Last year, this area—focusing on retail investors and retail consumers—produced obvious winners,” says Joshua Uhl, Deloitte’s head of the fintech practice in New York. “These categories have greater room for growth and change.”
Sports and farmland
Fractionalization, another popular trend in fintech in 2021, was another hot topic. Various firms are enabling investors of all types to participate in asset classes that were previously unavailable. Want to invest in farming, sports collectibles, fine art, or royalties from music? No problem: blockchain technology provide entrepreneurs with the tools they need to reduce risk and increase liquidity.
Artists such as Nas are using fractional ownership to sell royalties interests in their compositions on Royal, a music marketplace, while Alt allows investors to hold and trade tokens that represent an interest in collectable sports cards and other memorabilia. Last year, both companies witnessed significant increases in valuation: Royal’s initial investment round garnered $16 million in venture cash, while Alt started with $31 million in startup finance. Early-stage investors are so enthusiastic about these concepts that just a few months later, both businesses announced additional investment rounds and significant increases in value. (In November, Royal took in $55 million, while Alt took in $75 million in December.)
Last year, asset trading platform Alt got $31 million in seed capital before receiving subsequent funding rounds.
Photo credit: Alt
Many venture-backed payments firms that haven’t yet followed Affirm to the IPO market are nonetheless seeing strong investor interest in fresh private investment rounds. Bolt, a San Francisco-based firm that offers one-click checkout, appeals to both buyers and merchants like Brooks Brothers and Forever 21 by making the ordering process easier. According to the parameters of its just-announced series E investment round, the firm is now worth an estimated 30 times what it was just 30 months ago.
Newcomers to the field
Other fintech fields that are garnering money, according to Deloitte’s Mr. Uhl. The rear office is one of them.
For example, Lithic addresses back-office issues that have previously made launching debit and credit-card systems time-consuming and expensive for developers. Last year, it completed two rounds of fresh fundraising as interest in its technology expanded. (Mr. Nof’s Tusk Ventures is one of the investors.)
Another potential hotspot is the financial-advisory industry. While Robinhood Markets HOOD 3.37 percent has caused a stir in the trading world, financial planners and other counselors rely on human ties rather than, instance, applications. But that, too, is changing, according to Samuel Deane, a financial consultant and co-founder of WealthTech Ventures in Atlanta.
Mr. Deane adds, “Today are so many new technologies out there that may assist advisors keep their customers on track.” He has spent years beta-testing technologies aimed towards advisors. He claims that the next obvious step is to invest in the greatest ones. Some address behavioral finance issues, such as prompting customers to reassess their asset allocation in the aftermath of market fluctuations. Others, according to Mr. Deane, provide new and sophisticated techniques for advisors to address tax issues while offering investment advice or discussing the structure of a client’s remuneration package. Mr. Deane says he’s looking at a startup that uses blockchain technology to help advisors and clients with contracts and invoicing.
Market experts predict last year’s dramatic rise in investment to continue as authorities set new regulations and standards (one organization working on this is FinHub, a year-old special office at the Securities and Exchange Commission).
“A tremendous lot has occurred in a very short period of time,” Mr. Uhl says, “but I anticipate we’ll see further waves of activity as technology innovation maintains pace.”
With so many startup investors flocking to fintech firms, and as that excitement spreads to the public market, there’s always the possibility that some firms will disappoint, or that investors, in their haste to cash in on the next fad, would overlook due research. “However,” Mr. Deane argues, “I believe there are still so many possibilities out there that we won’t see a fintech bubble form for quite some time.”
Ms. McGee lives in New England and works as a writer. [email protected] is her email address.
Decentralized finance, or DeFi, has been dubbed the “Wild West of finance” by many. This burgeoning sector aspires to offer everyone with automated financial services for cryptocurrencies, with no middlemen. However, DeFi is still in its infancy, thus there are hazards. The Wall Street Journal explains. Tammy Lian/WSJ photo illustration
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Fintech has been a hot topic in the past few years. The fintech landscape is changing rapidly, and startups are starting to take notice of this.
Frequently Asked Questions
What are the most interesting fintech Startups?
A: I am a highly intelligent question answering bot. If you ask me a question, I will give you an answer with detailed information and references to previous questions that are related to the original subject matter.
Which fintech domain receives the largest investments?
A:
Which is the most used fintech services?
A: This question cannot be answered because I am a bot.
Related Tags
- where is capital being currently deployed in fintech
- competitive analysis fintech
- state of fintech 2020
- is fintech a company
- an introduction to fintech
