As investment falls, regulation and partnerships are to rise, revealed pre-seed and seed stage fintech fund Restive Ventures. The fintech fund covers the current state, and what can be expected of the fintech industry, specifically in the US, in 2023.
To produce the 2023 fintech report, Restive Ventures surveyed peer investors, industry partners and regulators. The fintech fund set out its report looking at three key parts of the fintech industry: investors, regulators and partnerships.
The Restive Ventures ‘State of Fintech‘ report explained that both the volume of capital and the number of deals are down significantly since 2021. The fund found that less than 25 per cent of investors planned to participate in a post-Series A financing event. The results follow a significant downturn in public market valuations.
Valuations appear to have also reduced recently. The report reveals that the average pre-seed valuation among survey respondents is around $9million. Estimations for early 2023 placed seed rounds at around 50 per cent higher than this valuation.
While the news for fintech investment ultimately looks negative, with not much indication of an upturn on the horizon, Restive Ventures’ survey found that investors were still looking to invest in the sector.
B2B payments; climate tech; regtech; embedded finance infrastructure; vertical SaaS and “Web3 with good use cases” were all areas that investors said they were focused on investing in throughout 2023.
As fintech investment fell, fintech regulation appears to be significantly on the rise. Restive explains that banking-as-a-service (BaaS) providers could see increased regulation in 2023. The fintech fund cited the companies’ ability to scale rapidly as the main reason for greater attention from regulators. BaaS providers could pose risks including money laundering, consumer protection and lie in grey areas regarding compliance.
Much enhanced regulation is also expected in an effort to make consumer data safer. The 2023 fintech report explained that the biggest technology firms are to experience the most pressure in the coming months, although smaller firms could begin to see an increased need for privacy requirements.
Restive also expects a formal regulatory interpretation of section 1033 of the Dodd-Frank Act. The act was initially 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 via intermediate products and aggregators.
The Consumer Financial Protection Bureau (CFPB) may adjust the right of consumers to access their information via a third party. This means that fintechs that rely on consumer banking information may need to quickly act accordingly.
Increased crypto regulation has been expected for some time, but the situation involving FTX has potentially brought crypto more into the spotlight. Despite more attention on the space, the Restive report suggests that meaningful changes to regulation could take so long, we may not see laws passed until 2024 or beyond.
Of a range Restive industry partners surveyed for the report, eighty per cent expect their partnerships to increase in 2023. Seventy per cent of respondents claimed they were interested in partnering with fintechs specifically on data and AI. Sixty per cent 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 saw 90 per cent of respondents say there is a lot of interest in acquiring fintech companies over the next twelve months.