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The latest from Y Combinator A group of founders have their say on the future of fintech. A fifth of the accelerator, which covers 240 companies, is working to solve problems in the financial space by summer 2022. The tips range from building a plaza for small business owners in Latin America to creating a way for an angel to invest in your favorite athlete.
And while the ends are different, some of the focus points to key ways that certain groups of entrepreneurs are considering a changing landscape in light of weak venture markets, declines, and some public market inefficiencies. The most prominent problem area among this batch of fintechs is related to payments, unsurprisingly. The story begins in which focus is second: neobanks.
Thank you, Neobanks
This year’s group includes 11 neobanks, a trend we saw start with the YC W22 group, which also includes 18 such companies. That’s a big increase from the 1-2 neobanks per batch that YC offered in 2020 and 2021, suggesting a rapid doubling of growth in founders looking to build the next “one-stop shop” for fintech services. .
The founders NeoBank chose to back this summer have a high degree of niche market knowledge that allows them to capture a share of the wallets of a specific population they know well, rather than trying to cultivate a broader but perhaps deeper need. About half of the neobanks in this batch are based in the United States, while the rest are spread across the UK, Switzerland, India, Nigeria, Senegal and other geographies.
Lagos, Nigeria-based Pivo is focused on freight carriers in Africa, Hostfi is looking to capture the short-term rental hosting market, and Pana is targeting the 62 million Latinos in the U.S., just to name a few examples. The latest collection. The three companies, a Nigerian port operations manager, an Airbnb superhost and a Latham-focused digital banking exec respectively, demonstrate a deeply focused approach to additional market segments where these founders already have experience.
YC’s Neobank stock feels somewhat at odds with the overall fintech sentiment at the moment. There have been many examples of why neobanks – albeit low-cost and sensible banking solutions – don’t do well: there are huge losses despite mega venture rounds. Strong growth is possible, but often more and more operating costs.
However, while some see the sector’s big losses as the end of neobanks, Chim offers hope. The famous Neobank It has become EBITDA-positive by the end of 2020, which shows that the group can reach a place of economic health and shut down some criticisms. Still, the banking world is an increasingly competitive place as every fintech company fights for a share of consumer wallets. Neobanks are less likely to be a one-size-fits-all market—instead, more specialized startups may be better suited to serve a community’s unique needs in a holistic way. And this collection supports that understanding.
International fintech remains a key focus
India has always been Y Combinator’s favorite geography for investing outside of the United States. The last group, YC India’s founders appeared to be mostly focused in the financial services sector, around 30% when you consider that 11 out of 36 Indian startups are in the fintech world. Then there was a contrast to earlier scenes where most Indian YC startups fell into the B2B services category.
Last year saw a huge focus on fintech, but this year the courses have reversed slightly. Of the 21 startups YC has backed in India, about 40% or 8 startups are in the fintech category. Fintech is still a big area of focus, but B2B has taken the lead for the geography: 47% of YC’s India startups this year are focused on the corporate world.
A slight shift away from Indian fintech doesn’t mean YC is indifferent to fintech startups globally. The accelerator has backed eight fintech bets in Latin America, accounting for 57% of total bets in the region this season. Latin America’s fascination with financial technology seems to have continued, perhaps heightened by the success of the high-profile Brazilian neobank Nubank, which went public and officially became Latin America’s most valuable bank late last year.
African fintech has a similar story, with five of the eight fastest growing investments operating in the fintech space. There’s Anchor Remote Banking, which has raised over $1 million for Middle Eastern startups, Bridgecard, a card issuer in Nigeria, and Irad, a non-profit funding platform for Middle Eastern startups.
Friendly investment terms future
Although fintech funding for private companies is down a bit this year compared to the extremely hot 2021 market, the sector continues to be hotter than previous years, accounting for 21 percent of all corporate deals in Q2 2022. YC follows a similar trend, with pre-seeds likely to outperform latecomers like Stripe or late-market fintechs like Robinhood and Affirm because they don’t feel stable at the moment.
Here’s a quick breakdown of the percentage of fintech companies in the last few batches:
As in any sector, we can see the competitive tensions in the pace begin to multiply depending on where the startups go. Crypto startups Eco and Pebble, both YC participants, clashed earlier this year when Eco’s CEO sued Pebble’s founders for “copy-pasting” significant parts of the company.
The entire fintech space has become bloody at the moment as the market is flooded with companies playing in the same area trying to fight for the same set of customers. YC startups are no exception – only time will tell if their approach of focusing on international companies operating in the market will pay off, or if consolidation in the sector is too far to see more success for new startups.
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