Here’s what’s hot — and what’s not — in fintech right now

Financial technology is the hottest area of investment for venture capitalists — $1 out of every $5 of funding flowed into fintech startups in 2021.

But with a recession possibly around the corner, investors are writing fewer — and smaller — checks. And they’re getting much more selective about the kind of companies they want to back.

According to CB Insights, global venture investment in fintech firms sank 18% in the first quarter of 2022.

That’s led to something of a rotation out of certain pockets of fintech that were hyped by venture capitalists last year, such as crypto and “buy now, pay later,” and into less sexy areas focused on generating stable streams of income, like digitizing payment processing for businesses.

So what’s hot in fintech right now? And what’s not? I went to the Money 20/20 Europe event in Amsterdam in June to speak to some of the region’s top startup investors, entrepreneurs and analysts. Here’s what they had to say.

Investors are still obsessed with the idea of making and accepting payments less onerous for businesses and consumers. Stripe may be facing a few questions over its eyewatering $95 billion valuation. But that hasn’t stopped VCs from looking for the next winners in the digital payments space.

“I think we’ll see a next generation of fintechs emerge,” said Ricardo Schafer, partner at German venture capital firm Target Global. “It’s a lot easier to build stuff.”

Niche industry buzzwords like “open banking,” “banking-as-a-service” and “embedded finance” are now in vogue, with a slew of new fintech firms hoping to eat away at the volumes of incumbent players.

Open banking makes it easier for firms that aren’t licensed lenders to develop financial services by linking directly to people’s bank accounts. Something that’s caught the eye of investors is the use of this technology for facilitating payments. It’s an especially hot area right now, with several startups hoping to disrupt credit cards which charge merchants hefty fees.

Companies like Visa, Mastercard and even Apple are paying close attention to the trend. Visa acquired Sweden’s Tink for more than $2 billion, while Apple snapped up Credit Kudos, a company that relies on consumers’ banking information to help with underwriting loans, to drive its expansion into “buy now, pay later” loans.

“Open banking in general has gone from a big buzz word to being seamlessly integrated in processes that nobody really cares about anymore, like bill payments or top-ups,” said Daniel Kjellen, CEO of Tink.

Kjellen said Tink is now so popular in its home market of Sweden that it’s being used by about 60% of the adult population each month. “This is a serious number,” he says.

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