Fintech trends and founders investors are watching in 2023

Fintech, a multifaceted industry, has gained significant popularity, with banks and insurance companies leading the charge for growth. Eager to acquire any promising technology, these players have greatly influenced the valuation of startups entering the market. However, the fintech bubble has been burst by the COVID-19 pandemic and the ensuing economic uncertainty. Global fintech investment fell 30% to $164 billion last year, according to KPMG’s Pulse of FinTech report.

The problem is not a lack of money. Instead, there is the need for valuation correction of early and mid-stage investments before Series A. Startups need to understand that their projects are not automatically worth millions just because they have an amazing presentation. There will likely be a more standardized flow of investment, and valuations of ten million euros may be closer to one. This change will be a struggle for startups as they may think their project is worth more than it actually is.

Despite the ongoing economic uncertainty, analysts predict that fintech funding will remain significant, although it may not reach the same levels as previous years. So, which startups and entrepreneurs are likely to receive money in 2023?

Focus on the back office

What has become very prominent in the market in the last year is a decrease in the number of neobanks that offer a comprehensive banking solution, such as Revolut. Only 5% of neobanks today are believed to break even, according to the Simon-Kucher & Partners report. On the other hand, there is still demand for actors who collect loans and mortgages, which is linked to the complexity of document and information management. For example, when applying for a mortgage, it is necessary to store and manage all relevant information. Consequently, the increasing demand for technology enables data standardization in back office processes. In addition, the use and tracking of alternative data from various documents in the back office is likely to become a significant trend. This market may be more localized.

Raise economic knowledge and inclusion

Despite changes, there is a growing movement to increase financial literacy and standards in underdeveloped countries. As 1.4 billion adults in the world remain unbanked – more often women, less educated, poor and rural populations – more dedicated, multi-stakeholder strategies are needed to achieve universal financial inclusion. This creates a need for alternative scoring methodologies for assessing creditworthiness. The latest Global Findex data shows that financial inclusion is on the rise, with 76% of the global population having a bank account in 2021, up from 51% in 2011. The pandemic increased mobilizing efforts for financial inclusion. As investors, we see progress in this area with more investment in alternative scoring methods and other relevant fintech solutions.

Robo advisors

Although robo-advisors are a good solution for many alternative long-term investments instead of pension funds or self-building for the future, we have not seen significant growth yet. However, there may be a trend in this area, as established players in the traditional asset management industry, such as BlackRock and Fidelity, have entered the market by offering their platforms and investment options. Another new trend is the increased focus on investments in environmental, social and governance (ESG). Many robo-advisors now offer ESG investment options for clients looking to invest in companies that prioritize sustainability and social responsibility.

New solutions and KYC/AML for insurance

Compared to finance, insurance is far less developed. But with the rise of pay-as-you-use or pay-as-you-are-risk insurance, which is a mix between microinsurance and traditional insurance, there is more and more demand for new solutions. Insurance companies are incorporating risk-reducing technology into their products, such as helmets with lights that turn on if you fall or small machines in cars that monitor how you drive.

Insurance also faces a serious problem with digital identification (digital ID) and Know Your Customer (KYC) processes to enable remote onboarding or fraud detection. As customers increasingly use multiple digital platforms, there is a growing need for interoperability between different digital ID and KYC systems. The insurance companies must also ensure that they handle this data securely and comply with privacy regulations.

Fintech for climate

As the intersection of fintech and climate technology continues to evolve, new technologies in this area are likely to be in demand. For example, with the increasing focus on reducing carbon emissions, there is a need for solutions that can accurately track them across supply chains or tools that can provide real-time monitoring of emissions from buildings and other sources.

As climate change continues to affect businesses and communities, there is a growing need for technologies to assess and manage climate risk – from providing real-time data on weather patterns and other climate-related events to helping businesses and communities prepare for and mitigate their impact the events. For example, in Startup Wise Guy’s fintech batch, we had an insurance micro and distributor focused on climate events, as well as a company specializing in analyzing data to help customers decide if they should have the right insurance and set prices accordingly.

As investors increasingly look for opportunities to support sustainable and environmentally responsible companies, there is also a growing demand for technologies that can facilitate green financing and investment.

A unique offer is the best choice

Investors actually consider the market’s potential and expected growth when evaluating fintech startups. However, it is important to note that the selection process is not simply based on more significant trends alone. A startup with a unique offering, such as a personal financial management tool for children, may be a bit of a trend, but it can still be an excellent idea.

Ultimately, investors seek founders who know their business model and can clearly explain their ideal customer persona, anticipate the sales cycle, design an effective sales funnel and be aware of the legal framework in the geographies they operate. If entrepreneurs can convince investors that their service or product is significantly cheaper and faster than their competitors, they are more likely to attract investment.

About the author

Juan Alonso-Villalobos is board member and Fintech General Partner at Startup Wise Guys, one of the most active accelerator funds in Europe and Africa, with over 350 investments in early-stage startups in B2B SaaS, Fintech, cybersecurity, XR and sustainability for more than 60 country. Startup Wise Guys’ team has invested in 59 fintech-branded startups, totaling over €6 million, with investments varying between €1 and €3 million per year over the last three years. With almost 30 years of experience in investment and venture capital, Juan is also a partner and CFO at Portfolio Stock Exchange, a senior advisor at Blackfin and an independent director at Grupo Concentra. His multi-expertise skills allow him to have a 360º view of businesses, making him a valuable asset to any team.