Invest. Create. Deploy. Investor funding is a critical component of market growth for any industry. For funding in Q1 2022, the fintech industry came out swinging, and it has been the fastest-scaling sector during the first half of the year, receiving $1.4bn in venture capital investment globally.
In fact, fintech start-ups amalgamated an astonishing $32.4B globally in Q1 2022, which is up 27% year on year. Additionally, European fintech funding is thriving, and Q1 was the best quarter ever, which is also up 9% from Q2 2021.
The fintech venture capital marketplace for 2023 is looking robust. It has many of the same growth drivers as last year, but the fundamental difference is that investors are now looking for early-stage deals that require less investment for each opportunity. It is all about ROI (return on investment) regardless of your business.
The Doom and Gloom Financial Crash. Is It Doom for Fintech?
The reality is fintech was a product of crisis. It arose out of necessity and user demand. It was created in reaction to an era in which financial institutions (FSIs) could not contend due to a drastic market shift that was brought on by the global recession in 2008.
2008 changed the market landscape for FSIs as they knew it, eventually leading to the digital era of finance we know today. This surge of new digitalised and sophisticated banking services led to the rise of the fintech sector.
As 2022 draws to a close, Q4 will see further rising interest rates, spiralling inflation and market volatility, but what does this mean for fintech?
Ultimately, no one can deny that there will be challenging conditions to navigate. However, this is true for all financial institutions, including big banks. Across all markets, the threat of recession is forcing many business leaders to become more efficient regarding their spending and budgets, with the view that adopting a ‘leaner’ operation during these challenging times will lead to a more resilient organisation.
Like other industries, the recession is a challenge for players in the payments landscape. This is because, at its core, a recession affects actual consumption, which is the base layer of payments industry growth.
However, there is still more investment money available and opportunity for growth, but during a recession, investors take fewer risks and take longer to make investment decisions.
The payments industry has a more nuanced outlook than current valuations imply. In fact, many aspects of payments may be more resilient in a recession than many investors expect, creating the potential for enormous investment opportunities.
Stability Is Key during Rocky Times
There doesn't appear to be an immediate threat to the stability of the fintech industry. Recent years have seen specific investment sectors suffering because of the pandemic and now the impending recession, but it's not all doom and gloom. The UK fintech sector is booming, with figures showing that it is growing by 24% year-on-year. There is a lot of 'fintech hype' with good reason, and there is still a lot of money circulating in the UK market.
The UK has a well-developed fintech ecosystem, especially around financial services. For this reason, the UK continues to be a hotspot for fintech companies looking to launch, mainly because of London's economic infrastructure, and because Britons are early adopters of new tech and payment types, as well as the security and willingness to move with the times that the Financial Conduct Authority offers.
In short, there isn't any apparent reason for us to think that there is a threat to the payments industry here in the UK, and it continues to be a sector that appeals to many investors.
However, it's likely that in 2023, fintech companies and venture investors will look for stable moves rather than aggressive ones. If high-risk, high-reward short games drove 2021, 2023 will see more conservative long-game approaches.
All in all, the future of fintech is bright. Although 2023 funding totals may not rival 2021 growth, fintech remains a top priority for investors because it is a crisis-native industry that enables it to adapt and innovate quickly to meet the demands of its consumers. The fact of the matter is fintech will remain integral to the future of the finance industry, ensuring they can respond to the shifting needs of the market through the effective deployment of next-generation technology.
Dima Kats CEO at Clear Junction
