The European fintech industry is poised for another year of growth and innovation, as new trends emerge and reshape the financial landscape. From cryptocurrencies and decentralized finance (DeFi) to embedded insurance and sustainable investing, here are some of the key sectors forecast to see notable traction in 2022.
Cryptocurrencies and DeFi Break into the Mainstream
Cryptocurrencies and DeFi have been gaining momentum in the past years, attracting both retail and institutional investors with their potential to offer more transparency, efficiency and access to financial services. In 2022, these sectors are expected to break into the mainstream, as more corporate venture capital funds join the fray and invest in crypto and DeFi startups.
According to a report by Finch Capital, a fintech-focused venture capital firm, corporate participation in crypto and DeFi deals has increased significantly over the past years, at the detriment of sectors such as mortgage and lending. Out of the world’s 20 largest venture funds based on assets under management (AUM), 17 have invested in companies in blockchain or cryptocurrencies, according to a research by Blockdata, a blockchain data and intelligence firm owned by CB Insights.
Blockchain companies raised a record of US$7 billion in H1 2021 driven by mega-rounds of US$100 million and over. Some of the notable deals include Circle’s US$440 million funding round, BlockFi’s US$350 million Series D, and Chainalysis’ US$100 million Series E.
Embedded Insurance Takes Off
Embedded insurance is another segment to watch closely in 2022. After a blockbuster year 2021 with record funding levels and the minting of more than five insurtech unicorns, insurtech will continue to be a center of focus for investors and innovators, with business-to-consumer (B2C) insurtechs and embedded insurance, in particular, seeing notable traction.
Embedded insurance refers to the integration of insurance products into non-insurance platforms, such as e-commerce sites, ride-hailing apps or banking apps. By embedding insurance into the customer journey, embedded insurance providers aim to offer more convenience, personalization and affordability to consumers.
Finch Capital predicts that leading super apps and money management apps will be driving the embedded insurance movement in 2022, pushing others to follow suit and copy the integration. In the broader embedded finance market, insurance is expected to witness one of the fastest growth rates. US private equity firm Lightyear Capital predicts that the global market for embedded finance will grow more than tenfold from US$22.5 billion in 2020 to US$229.8 billion in 2025. The embedded insurance segment will account for 30.8% of the figure, followed by embedded payments (61%), embedded consumer finance (6.8%) and embedded asset management (1.1%).
Enabling Software Rises in Demand
Enabling software, such as artificial intelligence (AI) for debt collection and process automation, end-to-end (E2E) know-your-customer (KYC) solutions and banking-as-a-service (BaaS), will be a key theme in 2022. Finch Capital predicts rising adoption of efficient KYC solutions amid increased sophistication of financial crime and regulatory pressure.
KYC solutions help financial institutions verify the identity of their customers and assess their risk profile. By using advanced technologies such as biometrics, optical character recognition (OCR) and blockchain, KYC solutions can streamline the verification process and reduce costs and errors.
BaaS platforms, which provide fintechs and other non-banks with access to banking infrastructure and services via APIs, will also see increased demand as more players enter the fintech space and seek to offer seamless and integrated financial solutions to their customers.
Some of the leading BaaS providers in Europe include Solarisbank, Railsbank, Bankable and ClearBank.
