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This is where the newest group of YC founders are placing fintech bets • londonbusinessblog.com

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The latest from Y Combinator cohort of founders have opinions about the future of fintech. One-fifth of the accelerator’s batch for Summer 2022, which includes 240 companies, is working to solve problems in the financial space. The fields range from building the Square for micro-traders in Latin America to creating a way to invest in your favorite athlete.

And while the pitches are diverse, some concentrations show the key ways a group of vetted entrepreneurs is reflecting on the landscape’s shift in the face of finicky corporate markets, a downturn and some public market collapses. The most popular problem area among this batch’s fintech cohort has to do with payments, which is not surprising. The story really starts with which focus came second: neobanks.

Thank you, Neobanks

This year’s cohort includes 11 neobanks, a trend we saw start to rise with YC’s W22 cohort which also included 18 such companies. That’s a significant increase from the 1-2 neobanks per batch that have cut for YC in both 2020 and 2021, suggesting the accelerator is doubling down on founders aspiring to be the next “one-stop shop” for fintech companies. build services.

The neobank founders who chose to support this summer generally have a highly specialized knowledge of niche markets, giving them the potential to capture, rather than seize, the entire wallet share of specific populations they know well. trying to cultivate a broader but perhaps less deep appeal. Nearly half of the neo-banks in this batch are located in the United States, while the rest are spread across the UK, Switzerland, India, Nigeria, Senegal, and other geographic areas.

Located in Lagos, Nigeria pivot is aimed at freight forwarders in Africa, hostfi is looking for the short-term rental market and pana says it’s targeting the 62 million Latinos living in the US, just to name a few examples of the latest batch. The three companies were founded by a Nigerian port operations manager, an Airbnb superhost and a LatAm-focused digital bank executive respectively, demonstrating these founders’ highly focused approach to more niche segments of the market where they have previous experience.

YC’s concentration of neobanks feels somewhat at odds with the general fintech sentiment these days. There are countless examples of why neobanks – despite being cheap, smart banking solutions – don’t work well: despite mega-corporate rounds, there are big losses. Strong growth is possible, but often at the cost of increasing operating costs.

But while some saw huge losses in the sector as the end of neo-banks, Chime offers hope. The well-known neobank turned EBITDA positive at the end of 2020, showing that the cohort can reach a place of economic health and stop some criticisms. Still, the banking world is an increasingly competitive space as virtually every fintech company fights for its share of the consumer wallet. It is unlikely that neobanks are a market that takes everything for the winner. Instead, more specialized startups may be better suited to respond holistically to the specific needs of a particular community. And this batch supports that realization.

International fintech remains an important focus

India has always been Y Combinator’s preferred geography to invest in, outside of the United States. The latest batch, the founders of YC in India seemed to be mostly concentrated in the financial services, about 30% when you consider that of the 36 Indian startups, 11 were in the fintech world. Then it was a contrast to previous impressions, where most of the YC startups in India fell into the B2B services category.

Where last year there was a greater focus on fintech, the prices have been slightly reversed this year. Of the 21 startups YC supported in India, this cohort, about 40%, or 8 startups, fall into the fintech category. Fintech is still a big focus area, but B2B has led the way for geography: 47% of YC’s startups in India this year are focused on the corporate world.

The slight shift of Indian fintechs is not necessarily an indication that YC is less concerned about fintech startups worldwide. The accelerator supported eight fintech bets in Latin America, accounting for 57% of total stakes in the region this season. The Latin American fascination with financial technology persists, it seems, perhaps boosted by the success of the high-profile Brazilian neobank Nubank, which went public and officially became the Latin American most valuable publicly traded bank late last year.

African fintech has a similar story, with five of the accelerator’s eight investments in the fintech space. There is Anchor, a remote banking-as-a-service platform that has already raised more than $1 million for its platform, bridge carda card issuer for Nigeria, and erasea non-dilutive financing platform for startups in the Middle East.

The future of friendly investment terms

Despite a slight slowdown in fintech financing for private companies this year compared to the ultra-hot market of 2021, the sector remains much hotter than in years past, accounting for nearly 21% of total venture deals as of Q2 of 2017. 2022. YC is following the same trend, with pre-seed perhaps getting a boost in enthusiasm that late-stage companies like Stripe or publicly traded fintechs like Robinhood and Affirm aren’t exactly feeling stable right now.

Here’s a breakdown of the percentage of fintech companies in the past few batches of the accelerator:

As with any industry, we can see competitive tensions starting to arise within the accelerator itself, depending on where startups come from. Crypto startups Eco and Pebble, both YC participants, had a feud earlier this year when Eco’s CEO made charges against the Pebble founders for “copying and pasting” key parts of his company.

The overall fintech space is a bloodbath right now, as the market has become saturated with companies all playing in similar areas and trying to fight for the same groups of customers. YC’s startups are no exception – time will tell whether their approach to focus on global companies operating in niche markets will pay off or whether industry consolidation has already gone too far for new upstarts to see success.

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