Payments could remain the most-funded sector within fintech, especially startups focused on B2B payments. On the other side, cryptocurrency and blockchain, which experienced a large increase in funding in recent years, will most likely face a pullback in the wake of ’s collapse.��

Leading sectors

Venture investment into fintech companies in 2022 reached $81 billion as of Dec. 14 — down 41% so far from the peak of 2021 at $137 billion. Still, that $81 billion figure still exceeds 2020 amounts by more than $30 billion.��

All told, the sector has grown more than 10 times in the last decade from $7 billion in 2013.��

Within the fintech sector, payments- and banking-related startups received the most venture funding over the past five years, Crunchbase data shows. Cryptocurrency startup funding exceeded these two leading sectors in 2021, but dropped back a bit in 2022. Blockchain technology also received more funding in 2021 and grew its share into 2022.��

E-commerce and insurance, meanwhile, fell as a proportion of overall dollars invested.��

First innings in fintech

The fintech sector is still in early innings, according to from venture firm that analyzes the changes modern fintech has brought to the world of finance.��

The New York-based firm, an investor in private and public company stocks, wrestles with the question of value creation in the fintech sector in the report on the state of fintech.��

Of the $11 trillion in market capitalization in financial services companies as of October 2022, only $508 billion — 2% — was in modern fintech companies, Coatue notes. That proportion was higher in 2021 at 5% due to high valuations given to public technology stocks, but in prior years it did not reach 1%.��

“On the way up everybody values growth,” , the co-head of its fintech practice and co-COO of Coatue’s growth practice, said in an interview. “On the way down, everybody is valuing profitability and retention. The highest-quality business models within fintech have actually been hit a lot less than the rest of the market.” 

There is a large amount of gross profit for modern fintechs to eat into: Across the financial services sector, gross profits globally totaled $6.5 trillion in 2021, Coatue estimates.��

Fintech business models

Not all fintech businesses and business models are created equal. Newer and in some cases unproven business models that have been hit harder in the public markets are consumer finance, insurtech and SMB payments, according to the report.��

Source: Coatue Whitepaper: Fintech and the Pursuit of the Prize, October 2022.

Public fintech

Coatue analyzed the strength of public financial services businesses across four measures: revenue retention, gross margin, operating margin and revenue growth. It then used its “rule of 200%,” which states that if those four factors combined add up to 200% or more, a company is in a stronger position in this market.��

By that measure, public fintechs leading on the list are Uruguay-based cross-border payment provider , Palo Alto, California-based back office financial startup and North Carolina-based banking platform .��

Source: Coatue Whitepaper: Fintech and the Pursuit of the Prize, October 2022.

Sectors for investment in 2023

“It’s very clear that it’s easier than ever to offer financial services, whether as a standalone business or as part of incremental margin and revenue in an otherwise non-financial business,” said of . “And we believe that trend is going to continue for the rest of our lives.”

With the slump in new tech listings in 2022 and the nosedive in value in public technology stocks including fintechs, where do investors see opportunities in 2023? Here are some sectors that stand out.��

B2B fintech 

Coatue continues to focus on B2B fintech, Gilroy said. Based on an analysis of the firm’s investments the best business models are in B2B. That’s because business-oriented financial services tend to have lower churn — compared to consumer fintech — and business customers often grow over time, increase spend and provide opportunities to cross-sell with new products.��

There is also opportunity in a “verticalized approach, whether you’re going after landlords in the real estate market or restaurants,” Gilroy said.��

Emerging markets 

Emerging markets present another growth opportunity for fintech startups.

“There’s a lot of underserved communities around the world in terms of access to even the most basic financial products,” said , a principal at and an investor in the firm’s early-stage practice in fintech and B2B software.��

Coatue noted in its report that “for incumbents who often struggle with customer service and innovation, doing business in emerging markets is practically impossible due to the increasing rate at which locals are coming online.”

Latin American fintechs that have gone public include cross-border payments dLocal, neobank and e-commerce platform , which went public in 2007.��

CFO stack

Then there’s the so-called “CFO stack,” or technologies that would make a finance executive’s job easier.

“There’s a tremendous amount of digitalization yet to come. A lot of that is around payments, but a lot of that is also around what we would characterize as the CFO stack, all of the different functions a CFO might ultimately have to navigate,” said Savage.��

Areas of innovation in this stack include tackling expense management, payroll and benefits, stock allocation, business analytics, financial planning and accounting.��

“The opportunity areas in fintech focus on the boring areas of infrastructure, fraud, payment operations, compliance, and taxes. CFOs will be more focused than ever on impact to the bottom line,” , a general partner at , said via email. “Fintechs that can demonstrate an improvement in payment authorization rates, better reconciliation rates, or reduction in fraud that is measurable will weather the downturn.”

Owning the balance sheet

Becoming a bank is expensive and time consuming in the U.S., according to Coatue, but can ultimately provide longer-term stability for a fintech company.�� 

With that in mind, many fintechs are applying to get banking licenses in order to hold customer deposits, manage money transfers and offer loans instead of partnering with an established bank. received a banking license in March 2021 to be able to originate loans through Square Financial Services. has a banking license in the European Union but has yet to be approved for a banking license in the U.K. Neobanks Nubank and Chime are not licensed as banks.��  

 “In a rising interest rate environment, legacy banks, insurance providers, and asset managers have the potential to weather down cycles better than capital-light business models, e.g., insurtech and consumer-facing fintech,” said Coatue in its report.

“Through this last cycle, balance sheets have kind of been a bad word within financial services, and we’re learning that owning the balance sheet, whether you’re consumer facing or business facing, puts you in control of your own destiny and takes you away from the need to maybe go and partner with somebody and continuously work on these these balance sheet agreements,” said Gilroy.

Looking forward

Last year, the big themes in financial services were infrastructure building, embedded finance, consumer fintech and a big interest in buy now, pay later platforms.��

With an increase in interest rates and the market downturn, consumer fintech and lending companies face choppier waters while those focused on enterprise payments have a greater potential for consistent growth in 2023.��

We expect consolidation as funding dries up, and fewer companies can scale up.��

Mobile banking platform has raised a $100 million Series C funding round. The amount is more than double the $42 million raised in a just 18 months ago. MoneyLion would not go on the record about its valuation, but sources claim it’s “near unicorn status.”

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MoneyLion has now raised since its inception in 2013. Investors in the latest round included a combination of strategic investors—Capital One and MetaBank —and existing financial investors , , and .

Despite saying the company was seeing “hypergrowth,” CEO and co-founder declined to provide any metrics regarding the company’s revenue growth over time. The company does say it has “over 5 million members” currently. That compares to over 4 million and last October. The startup also said its bank membership has grown “at an annualized rate of greater than 1,000% with respect to both accounts and daily average transactions.”

Describing itself as a “Costco/Netflix” of the financial industry, MoneyLion offers an array of services to its customers using a membership model: new mobile online​ ​banking​ ​and managed​ ​investment​ ​services, a no-fee checking account, savings, credit-building, cash advances, and personal loans. Membership costs depends on the services used. MoneyLion says it uses AI and machine learning to “deliver personalized money-saving recommendations” and do things like help people improve their credit scores. Looking ahead, the company said it plans to launch a trading platform in Q4 of this year.

Its membership is concentrated in Texas and the South and the startup plans to use the new capital in part to expand it more broadly throughout the rest of the U.S. The company’s headquarters are in New York and it has offices in Salt Lake City, Utah, San Francisco, and Kuala Lumpur, Malaysia. It’s also “very selectively looking at international opportunities as well,” according to Choubey. MoneyLion also plans to continue investing in its underlying technology and finding ways to further engage members over time.

, managing partner of Edison Partners, noted his firm led MoneyLion’s Series A and co-led its B and C rounds. Sugden said Edison has been impressed with the company’s ability to provide a “holistic” solution to customers.

“MoneyLion provides everything you’d get it if you walked into a physical branch of a bank,” he told Crunchbase News. “They offer a full suite of capabilities, which is pretty compelling from a consumer standpoint because you don’t want to have 4-5 apps to replace a bank.”

Sugden also believes that while the digital bank space is getting a lot of buzz and attention, from an investor standpoint, “the opportunity is still in the early innings.”

“Adoption rates of these challenger banks is still low,” he told Crunchbase News. “There’s a lot of room for growth. Overall, this is one of the more exciting stores I’ve been around during my time investing over the last 17-18 years.”

There’s clearly lots of investor interest in the space. Earlier today, mobile-first trading platform announced a $323 million Series E. With its new investment offering, MoneyLion will now directly compete with that company.

Illustration:

This week news broke that , a savings and banking startup, raised a $105 million Series E. The new capital comes from , , and several private equity firms. Prior investors took part as well.

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The Irvine-based startup has now , according to Crunchbase data.

Acorns is now worth $860 million according . If this round sounds familiar, it should. We’ve written about it a few times. Let’s go back in time to see how this deal came about, and then what it might mean for the startup.

Revenue And Product

In November of 2018, it was rumored that Acorns might raise $100 million or more. The new capital was said to value the company at as much as $700 million. As you can see, the was damn near spot on.

I was a bit skeptical at the time about the expected valuation. Given what was known about the number of Acorns accounts, and its revenue per year, the valuation felt high. I did a relatively pedestrian walk-through of the numbers as we knew them, and moved on. The company itself, however, wanted to talk further.

My work underestimated a few elements of Acorns’ business, namely that its partner work was revenue-positive, and its then-nascent debit card business would also accrete interchange fees. That meant there was more revenue tumbling into Acorns’ accounts than I had figured; the deal as leaked made more sense in the light of our fuller picture of the company.

I say all of that to help underscore Acorns’ ambitions instead of just mocking myself for missing things. Acorns, it appears, want to be more than a savings app. By moving into the debit space, it feels more like a neo-bank with a savings focus than a nifty app to help people save their first few hundred dollars.

And that’s why its new round (the $105 million Series E) is interesting. With so much new capital, Acorns can afford to do quite a lot on the product front; I’m curious how far it will take the banking side of its service, and how much focus the savings element will receive.

Acorns is not alone in working to change banking for younger generations. It’s something we’ve written about on Crunchbase News a few times — this and this, from , are a good start — and a topic I suspect we will continue to cover.

Modern American banking is a system designed for the wealthy and so ridiculous that they form a . If Acorns can do better for regular people and perhaps even reach some of the underbanked, it would be good. And the firm now has the money to do pretty much whatever it wants for a few years. We’ll see.

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