What happened in Fintech and Blockchain industry in Q1 2022?
General environment
Currently, 473 fintech unicorns operate all around the world. 40 were added in the first quarter of 2022, down 8 from the quarterly average last year, yet still a very high rate.
Fintech startups raised $32.4 billion in total in the first quarter of 2022, down 10% from the all-time high in the third quarter of last year, but still up 27% year-on-year.
Fintech funding is keeping up on a better level compared to the general situation with venture capital investments, especially if compared to last year’s levels. Fintech funding is up 27% year-on-year compared to 4% of total venture capital funding.
Crypto is still the most popular
VCs and other investors still consider crypto as the most fruitful fintech field to invest in. According to the Dealroom most recent report, crypto startups raised $7.0 billion in the first quarter of 2022, more than any other fintech segment. Crypto and Defi funding is also growing faster than any other segment, with a 2.4x increase compared to the first quarter of 2021.
Cryptocurrency valuations are also rising at all stages. Fintech valuations, with the exception of crypto, instead declined a bit in the late stage, while they continue to rise in the early stage.
Key fintech trends of Q1 2022
Challenger banks continued to raise the most funding in fintech in the first quarter, followed by crypto exchanges, DeFi, BaaS and embedded finance. A challenger bank is a small new bank seeking to directly challenge with big traditional banks using modern financial methods. Many of them have abandoned banking operations in branches and work exclusively online or through the application. Some major challenger banks include Monzo, Revolut and N26.
Digital banking or app-based banking has many big advantages, the main one being that by not managing the face-to-face branch system, they can avoid high costs associated with running and staffing the premises and put that money into better service and product innovation, and sometimes even reduce costs for customers.
Challenger banks have particularly prospered during the pandemic, as their customers could meet their banking needs with their phones or computers from the anywhere and at any time. Where an appointment might be required to open a bank account at a major bank, digital banking takes the process within minutes.
With a traditional bank, you can access your bank account, transfer money, and use your card, whereas, with a challenger bank, you will most likely be able to use services that the big banks may not yet offer, such as budgeting, tools, instant spending notifications, or even opportunities to invest your money. Thus, challenger banks have forced traditional banks to look at their own offerings and innovate to keep up with newcomers. This is a win-win situation for everyone as the banking industry evolves into a sector rich in useful products and solutions, providing great opportunities for its customers.
Parametric insurance, green finance, pay on demand, DeFi and BaaS, and embedded finance grew the most over Q1 2022.
Embedded finance is the most customer centric among all fintech solutions. Embedded finance has come to the fore in many sectors today due to the de-intermediation of the banking environment, the concept spans finance, banking and payments, offering customers more flexible and efficient financial processes.
Most of us interact with embedded financial technologies on a daily basis without even realizing it. Simplicity is now the “new normal” where customers can transact seamlessly on a single platform while performing their everyday financial activities mostly related to in-app payments for goods and services.
While embedded finance has helped deliver smarter and more efficient consumer-side (B2C) services, business-to-business (B2B) solutions have not reached the same level of innovation. One of the clearest illustrations of this is the ever-growing problem of slow payments, which has caused many businesses to wait weeks or months for payouts.
Slow and late payments are a major burden on suppliers across the board and deprive SMBs of the much-needed cash. The crisis of slow and late payments is hindering not only the growth of small businesses, but also the overall recovery of the global economy. Slow payments prevent working capital from reaching all corners of the distribution network and deprive suppliers of the cash they need to adjust to shortages and rising costs, forcing them to cut production.
This is a key impediment to the reopening of supply chains, increasing both the duration and the impact of bottlenecks and delays.
Embedded finance is the perfect tool for B2B networks to turn the tide on slow and late payments. Machine learning analyzes past payment patterns to make a probabilistic estimate of a few invoices that are unlikely to be paid, allowing the remaining invoices to be automatically paid as they are received. It is important to note that this technology can be implemented in all supplier payment processes — in Purchase-to-Pay (P2P) platforms, in enterprise resource planning (ERP) systems and in payment processing systems, in order to deliver capital to suppliers faster.
Implementing instant payment technology in B2B trading is a win-win for all parties involved. Suppliers free up cash instantly by providing them with the working capital they need to adapt to rising costs and invest in their business. Buyers pay off on their usual terms and strengthen supply chains in the process, opening up the ranks of small suppliers that would otherwise be excluded from offering their services.
Embedded finance should be a huge driver of innovation in 2022. As economies around the world seek to rebuild and renew, incorporating embedded finance into B2B commerce can go a long way towards building stronger and more reliable trade networks.
