Finance

Fintech Investment Stagnates As Embedded Finance Emerges

  • Embedded finance has become the “hottest trend in the finance market,” according to FintechOS.
  • Consumer fintechs have had a year to forget but B2B-focused startups have remained resilient.
  • Investment in embedded finance trebled to $3.1 billion last year, according to data from Dealroom.

Consumer-facing fintech companies have had a year to forget.

Stock-trading app Robinhood and cryptocurrency exchange Coinbase have laid off swathes of staff while shares in money transfer business Wise collapsed a year on from its London IPO.

VC investment in fintechs dipped slightly to $53.5 billion in the opening half of the year, according to PitchBook data. It represents a marked slowdown in the amount of capital flowing into an industry where investment ballooned to over $121 billion in 2021.

Fintechs dedicated to servicing other companies have continued to fundraise throughout the year with London-based firm Modulr raising $108 million in May and Tiger Global-backed Weavr securing $40 million in February. Investors have continued to pile into B2B areas like embedded finance, open banking, banking-as-a-service, and embedded payments.

“When I look at our growth, a lot of it is coming from embedded finance, it’s probably the hottest trend in the finance market,” said Teo Bildarus, the CEO of FintechOS, a startup that provides finance infrastructure for the likes of Vodafone and Societe Generale.

Investment in the embedded finance sector trebled to $3.1 billion last year, according to data from Dealroom. The market has been tipped to top $7.2 trillion by 2030.

Embedded finance enables non-financial services companies to provide banking products to customers beyond online payments, such as bank accounts, wallets, or loans. In the case of a company like Uber, a ride-hailing business not a bank, the technology allows customers to pay for their trip without leaving the app.

“Institutions want to offer banking-as-a-service solutions around buy now, pay later or lending options and while no or low code is not the ultimate weapon it’s a good tool to navigate the complexity,” Bildarus said.

No and low code options refer to the ease with which businesses can integrate new financial offerings. It allows companies to add new financial products without the need to deploy armies of engineers.

“No code and low code offerings provide software companies with the necessary speed to get to market and gain momentum,”  Jon Fry, the CEO of Y Combinator-backed Lendflow, told Insider.

“Customers are less likely to change services once they’ve made a decision, so the ability to quickly launch a valuable offering is what drives companies to become a leader in acquiring and retaining those customers. Low code and no code make it easier to build out the products and refine them to keep up with the market changes.”

Europe has become a hotspot for embedded finance, largely thanks to a pre-existing network of cross-border trade regulation, multi-currency banking, and an open banking policy but the US is catching up too.

The sector is expected to generate around $230 billion of new turnover by 2025 in the US, a massive jump from the $22.5 billion it generated in 2020, according to figures from Lightyear Capital.

“When I speak to customers and potential customers in the US the biggest takeaway is that people are looking at this opportunity more than before, it’s triggering everyone’s attention and you can’t ignore it as a trend anymore,” Bildarus said.

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