Fintech investment stagnates as embedded finance emerges

• Embedded Finance has become the “hottest trend in the financial market,” according to FintechOS.
• Consumer fintechs have had a year to forget, but B2B-focused startups have remained robust.
• Investments in embedded finance tripled 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 a number of staff while shares in money transfer business Wise collapsed a year after its London IPO.

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

Fintechs dedicated to serving other companies have continued to raise money 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 flock to B2B areas such as embedded finance, open banking, banking-as-a-service and embedded payments.

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

Investments in the embedded finance sector tripled to $3.1 billion last year, according to data from Dealroom. The market is tipped to top $7.2 trillion by 2030.

Embedded Finance enables non-financial service companies to offer 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 company and not a bank, the technology allows customers to pay for the ride 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 isn’t the ultimate weapon, it’s a good tool for navigating the complexities,” 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 having to deploy armies of engineers.

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

“Customers are less likely to switch services once they’ve made a decision, so the ability to quickly launch a valuable offering is what drives companies to become leaders in acquiring and retaining these customers. Low code and no code do it’s easier to develop the products and refine them to keep up with market changes.”

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

The sector is expected to generate around $230 billion in new revenue 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 talk to clients and potential clients in the US, the biggest takeaway is that people are looking at this opportunity more than before, it’s getting everyone’s attention and you can’t ignore it as a trend anymore,” Bildarus said.