Fintech Venture Capital Market Growth Projections For 2023
When it came to finance in 2021, fintech came out strong. Despite a decline in venture investment levels in 2022, which is anticipated to extend into 2023, the retreat is more about strategy than a supposed sector weakness.
The fintech venture capital market appears healthy for 2023, although it is unlikely to surpass the record-breaking 2021 performance. Growth is being fueled by many of the same factors, but investors are searching for early-stage deals with lower investment requirements per opportunity.
What Drove Fintech’s Meteoric Venture Funding In 2021?
Fintech products were a venture capitalist favorite investment in 2021, to the point where financial services as a whole accounted for more over $130 billion in venture funding, making it the leading industry for that statistic. In addition, fintech venture investment increased by more than 175% between 2020 and 2021, with “buy now, pay later” platforms, embedded services, and fintech apps taking the lead.
These drivers share several characteristics. They support convenience first. In order to handle real-time transactions from computer and device screens, people and organizations want to make judgments about purchases and other payments more quickly. They additionally promote security. Smart consumers are looking for financial solutions that will enable them to take advantage of the internet without jeopardizing their accounts or personal information since they recognize the potential of data. They also produce flexibility. Businesses and consumers require choices for making payments, obtaining capital, and managing cash flow when the economy waxes and wanes and external factors—such as pandemics or supply chain problems—increase pressure.
What Is Happening With Fintech Funding In 2022?
Convenience, security, and flexibility, the key drivers from 2021, remain important in 2022, however fintech investment sums are unlikely to hit the highs of 2021. Fintech investors are nevertheless still interested, but they are adapting their approaches to the ups and downs of the markets.
VCs are considering deals in the early stages. Startups and other newer, smaller fintech companies are more adaptable and better able to withstand market situations such as rising interest rates and other problems.
It is also important to note that, in contrast to previous years, the greatest deals are currently being conducted not only in Asia—specifically China—but also in Latin America, Europe, and Africa.
Recent developments in the fintech industry show this global trend. For instance, the Nigerian startup TeamApt completed a financing round in August that included important investor QED Investors. It is QED’s first investment in the continent of Africa. Additionally, according to recent reports from India, the country’s fintech assets are expanding and are projected to reach $1 trillion in 2030, suggesting expansion outside of historically typical regions.
Where Is Fintech Venture Investment Going in 2023?
However, it’s likely that in 2023, fintech companies and venture investors will seek consistent advances rather than aggressive ones. Growth is still happening, and with it, venture investments. If high-risk, high-reward short games dominated 2021, more cautious long-game strategies will predominate in 2023.
Where will there be growth in 2023, and what trends should investors anticipate? It is expected that current trends will continue to drive this industry’s evolution.
Environmental, social, and governance (ESG)-focused fintech products and companies are on strong growth trajectories. Inflows into ESG funds hit a record in 2021. Those numbers will only increase as ESG missions continue to come under pressure from investors, governments, and consumers. ESG funds’ investors must seek out opportunities and assets that align with these aims as ESG investment transparency becomes more widespread and is often even required by law.
Negotiating in developing countries. Fintech has recently been a financial liberator on every level. Fintech is driving evolution that is virtually a revolution, from apps and investment structures that increase accessibility for customers of all income levels to dealmaking in underdeveloped places. As a result, established markets and investing strategies should experience more change in 2023, according to investors.
Increased M&A activity. A trail of numerous investment opportunities is being left in the wake of innovation as the tech sector continues to develop at a more-than-robust rate. Due to the fact that entrepreneurs of all stripes are selling into the fintech markets, this has supported and will continue to support a healthy M&A activity.
The enduring growth of embedded services. More companies are integrating financial services into their processes in response to consumer demand for flexibility and convenience. Examples include apps for booking services, managing finances, and automating invoicing.
Overall, the fintech industry has a promising future. Fintech continues to be a key focus for VC investments even though 2023 funding totals might not match 2021 growth.