- The value of fintech investment is down by 52% in 2022.
- A lot of Fintech investments go towards crypto and DeFi.
- The industry is upsetting the status quo in emerging markets.
With digital migration, financial technology, or fintech, is slowly becoming the new norm in the financial sector. Fintech has been a disruptor since its inception a little over a decade ago.
Fintech startups have been changing the way banks make payments and investments. They have made it easier for people to access financial services and have given rise to new business models such as peer-to-peer lending and Robo-advisory.
Despite its potential, an analysis by BanklessTimes.com reveals that global investment in Fintech has dropped by 52% in 2022 despite continuous VC funding.
Speaking on the data, BanklessTimes CEO Jonathan Merry said:
This is a really worrying trend. Fintech has the potential to make finance more accessible and inclusive, but it looks like the industry is losing steam. We need to see more innovation in the space if it's going to live up to its promise.BanklessTimes CEO Jonathan Merry
Fintech Investment Shifts to the Crypto Market
The value of fintech investments has been on a rollercoaster since 2019 when it attained $215.1 billion. In 2020, investment values dropped by a third to $127.7 billion. However, in 2021 it rose again to $226.5B but is currently at $107.8 billion in 2022.
One of the main reasons for the decline in investment value could be the shift in focus from traditional fintech to crypto and decentralized finance (DeFi).
The first quarter of 2022 saw crypto startups raise $7.0 billion, more than any other type of Fintech. Thus, the financing for crypto and Defi projects has increased 2.4 times since Q1 2021.
Although early-stage fintech valuations continue to rise, late-stage prices have leveled off. Yet, valuations of cryptocurrencies are rising across the board.
Crypto exchanges, DeFi, BaaS, and embedded finance saw significant funding growth in Q1. This placed them among the most rapidly expanding markets. Also, challenger banks continued to garner a substantial share of fintech funding.
Fintech Is Upsetting the Status Quo in Emerging Markets
In countries like India, Kenya, and Nigeria, fintech startups are providing much-needed financial services to the unbanked population. These startups are challenging the incumbents and are slowly but surely eating into their market share.
These countries' governments and central banks are also taking notice of the fintech sector. They are coming up with regulations to control the industry and protect consumers. This makes it difficult for fintech startups to operate and raises the barrier to entry.
Shaking up the Financial Sector in Emerging Markets
Fintech innovation has decoupled value chains in positive ways. The innovation has proven helpful for low-income clients and providers that serve them.
Fintech allows clients access to service providers that use novel business models to deliver products. For instance, through Fintech, clients can access loans with few requirements and less bureaucratic red tape.
Besides, providers have more options for relying on third-party fintech solutions to fundamental banking procedures that are highly specialized, value-adding, and cost-effective. Both examples show how highly scalable startups are changing the financial services landscape.
The future of fintech is still bright despite the decline in investment value. The industry is constantly evolving, and there are still many untapped opportunities. The decline in investment value could be a temporary setback. Once the dust settles, we could see a resurgence in fintech investment.
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