[Programming note]

Signals is getting a revamp! Deeper dives on fintech trends are now coming to you 1-2 times a month, and the 4 activities we lovingly track (fundraising, exits, firms raising, & product launches) are consolidating into a single email sent right after quarter-end.

For new readers, Signals is the subscriber-only edition of TWIF designed to get you away from the headlines and to explore the larger trendlines. To kick off the year, we’re publishing a special free installment – subscribe to future editions here!

Hello Fintech Friends,

Hope this note finds you well and your stock portfolio… not entirely in the red. We’re kicking off Signals for the year with a recap of fintech activity in Q4 ‘21 and musings on embedded finance, Leonardo DiCaprio-style. Regular installments focused on hand-picked themes to follow– stay tuned!

Fintech Q4 2021 recap

Which concepts are getting funded? 🤑

Q4 was a boon for fintech fundraising, with investment up 399% from Q4 ‘20– well outperforming other tech categories globally.

Notably, the areas that saw the highest activity were:

• Neobanks, led by N26’s $900M Series E and Monzo’s $500M Series H
• DeFi infrastructure and crypto exchanges, led by MoonPay’s $555M Series A, Gemini’s $400M Series A, and FTX’s Series B extension of $420,690,000 (😶)
• eCommerce, led by Bolt’s $393M Series D and Razorpay’s $375M Series F

Where are exits, M&A, and SPACs concentrated? 📈

Neobanks cleaned up in Q4, mainly driven by Nubank’s whopping $41.5B IPO.

Klarna treated itself to a veritable shopping spree with its acquisitions of Piggy to power the Klarna browser extension, PriceRunner to enhance product discovery, and Inspirock to expand capabilities into travel. These acquisitions will be paid for in 4 interest-free installments over the coming weeks (just kidding) (but wouldn’t that be a fun marketing move?).

Which firms are raising debt and venture funds for fintech? 💰

Fintech-focused venture funds abounded globally, with:

• Anthemis, a women-led fintech venture fund, raising $700M to target embedded finance startups in the US and Europe
• VentureSouq, a GCC-based VC, launching a $50M fintech fund targeting early-stage fintech startups in the MENA region
• Seaya Ventures and Cathay Innovation (based in Spain and France, respectively) launching a $125M venture fund for Latin American fintechs
• Digital Horizon, a London-based VC with presence in Tel Aviv and Moscow, launching a $200M fund focused on fintech
• SBI Group (Japan), Sygnum (Switzerland), and Azimut Group (Italy) jointly launching a $75M blockchain venture fund
• Thailand’s Siam Commercial Bank and Charoen Pokphand conglomerate launching an $800M venture fund focused on fintech, blockchain, and digital assets

Which products were launched over the last quarter? 🚀

Consumer payments continued to see strong product development, most prominently in international payments. New entrants like DinoRemit launched into the ring while incumbents like Azimo and Wise further expanded their footprints. Facebook Meta made its own entry with the rollout of Calibra Novi, which is piloting instant, no-fee remittances facilitated by stablecoins. Despite high levels of innovation in recent years, the World Bank estimates that remittances still cost an average of 6.3% of each transaction– plenty more work to be done here!

See the full Q4 ‘21 data here (for paid subscribers only).

The year so far: Valuation repricing, fintechs within fintechs

So far 2022 has smacked down valuations across the tech sector. As a result we'll expect to see private companies put off public listings (👀 Acorns, Justworks), higher M&A activity as smaller companies go on sale, the regular market-is-revising-down-prices drill.

One trend that's been fun to follow this year is how the continued explosion of embedded features is going to reshape the fintech ecosystem.  There’s a growing sense that fintech products are becoming commoditized as each fintech launches their own instant credit line, debit card, etc. and everything starts to look the same. In a market where it’s difficult to stand out on a specific differentiator, the race is now on to build super apps that enable you to manage all (read: all) of your finances in a single place. Large companies will obviously benefit from being able to snatch up smaller fintechs and quickly expand capabilities, but startups are also getting a leg up.

Fintech within a fintech within a fintech

Can we rebrand "embedded finance" moves by fintech companies to something more whimsical, like "Finception"? Finception would also better capture what's going on right now.

It’s getting increasingly easier for platforms to add new financial features by embedding products from other companies into their own cores. This year alone, two startups– April and Column Tax– launched platforms that enable businesses to offer a tax feature simply by hooking into their APIs. Klover will offer its users access to Column Tax’s advanced refunds through the app, and Column Tax will, in turn, guide users to provide income information via Atomic, a payroll API. Boom. Finception.

In DeFi, innovators are also enjoying more flexibility as public  protocols proliferate. Companies like BlockFi, MakerDAO, and SushiSwap offer the building blocks for developers to create crypto lending and trading tools,and cross-blockchain networks like Cosmos and Polkadot make it easy to leverage several Layer 1 networks at once (the lack of interoperability between ledgers has historically been a major limitation for DeFi since it’s siloed projects into different protocols, each with their own benefits & constraints). Last month MoonPay, a platform that lets consumers trade crypto, launched NFT Checkout, an embedded checkout tool that allows platforms to accept card payments for NFT purchases. Buyers on, say, OpenSea may leverage this checkout experience through MoonPay, which in turn embeds Zero Hash’s Digital-asset-as-a-Service infrastructure to operate across a range of blockchains.

“You mustn’t be afraid to dream a little bigger, darling."

Over the past 5-10 years we've seen financial infrastructure companies tear down barriers to entry for fintech startups, enabling these companies to offer cutting-edge alternatives to legacy financial products and gain mass adoption (s/o to Plaid & Unit for enabling startups, and for employing me). Now that critical services like depository accounts and credit are widely available, fintechs are looking to get stickier by supporting more of their users’ financial lives– and embedded fintech finception makes this easy.

Looking ahead for startups, if selling differentiated features as embedded products becomes commonplace among consumer-facing fintechs, investors may come to expect more startups to build this revenue stream– and earlier on in their lifecycle.

From a consumer standpoint, as financial platforms are able to more easily embed other companies' features we should expect to see providers expand their offerings to capture more of our financial lives. As this trend compounds, the first generation of fintech super apps in the West may soon emerge from the horizon.