As investment dwindles, regulation and partnerships will increase, pre-seed and seed fintech fund has revealed Wayward companies. The fintech fund covers the current state and what can be expected of the fintech industry, especially in the United States, in 2023.
To produce the 2023 fintech report, Restive Ventures interviewed peer investors, industry partners and regulators. The fintech fund presented its report by examining three key elements of the fintech industry: investors, regulators and partnerships.
The Wayward Adventures’State of fintechThe report explained that the volume of capital and the number of transactions have decreased significantly since 2021. The fund found that less than 25% of investors planned to participate in a post-Series A financing event. The results follow a significant drop in public market valuations.
Valuations also appear to have fallen recently. The report reveals that the average pre-seed value among survey respondents is around $9 million. Estimates for early 2023 put seed towers around 50% higher than this estimate.
While the news for fintech investing is finally looking negative, with little indication of a recovery on the horizon, the Restive Ventures survey found that investors are still looking to invest in the sector.
B2B payments; climate technology; regtech; integrated financial infrastructure; Vertical SaaS and “Web3 with good use cases” were all areas investors said they were focusing on investing in throughout 2023.
While fintech investment has plummeted, fintech regulation appears to be increasing significantly. Restive says banking-as-a-service (BaaS) providers could see increased regulation in 2023. The fintech fund cited companies’ ability to scale quickly as the main reason for greater scrutiny from regulators . BaaS providers could pose risks such as money laundering, consumer protection, and fall into compliance gray areas.
Much stronger regulation is also expected in an effort to make consumer data safer. The 2023 fintech report explained that the biggest tech companies will come under the most pressure in the coming months, although smaller companies may start to see an increased need for privacy requirements.
Restive also expects a formal regulatory interpretation of Section 1033 of the Dodd-Frank Act. The law was originally introduced to reform Wall Street to prevent the risk taking that ultimately led to the financial crisis. This specific section provides the legal framework for consumers to access banking information through intermediary products and aggregators.
The Consumer Financial Protection Bureau (CFPB) may adjust consumers’ right to access their information through a third party. This means that fintechs that rely on consumer banking information may need to act quickly.
Increased crypto regulation has been expected for some time, but the situation involving FTX has potentially brought crypto further into the spotlight. Despite greater attention being paid to the space, the Restive report suggests that meaningful regulatory changes could take so long that we may not see laws passed until 2024 or beyond.
Among a range of restive industry partners surveyed for the report, 80% expect their partnerships to grow in 2023. 70% of respondents said they were interested in partnering with fintechs specifically on data and AI. Sixty percent of respondents were also interested in partnering with fintechs to cover both fraud and payments.
Mergers and acquisitions are also expected to increase in 2023, according to the fintech report. Restive’s survey found that 90% of respondents said there was a lot of interest in acquiring fintech companies over the next twelve months.