Amidst a backdrop of economic uncertainty, the global Fintech ecosystem experienced unprecedented growth in 2020. Then in 2021, the space reached new heights of innovation, with Fintech companies raising more than $140 billion, three times higher than 2020, setting an all time record. These record-setting trends were also mirrored in Israel’s rapidly maturing fintech ecosystem, which experienced a 3.5x growth in investments and an exceptionally high number of new unicorns and publicly-traded companies.
Over the past 12 months, we’ve witnessed financial incumbents innovating and adding new solutions to claim their slice of the fintech pie. We’ve also seen top Fintech players bundling and adding new value propositions to keep customers in their ecosystem and significantly grow market share. This has created a reality in which, just like post-2008, power has become increasingly concentrated in the hands of industry giants – only this time around the primary beneficiaries were non-traditional financial players, namely big tech. However, with growing demand for decentralized financial services and a new version of the internet – Web 3.0 – the financial services landscape appears to be on the verge of another major shift. In the coming years, it’s quite likely we’ll see a fresh wave of fintech innovation usher in a new era of greater financial autonomy, customer-centricity, and empowerment for individuals.
With these market dynamics in mind, Team8’s fintech experts weigh in on four key trends and opportunities that are on the table for businesses in the year ahead.
Embedded solutions: the key to unlocking fintech’s future
Rakefet Russak-Aminoach, Managing Partner, Team8
Within the financial services landscape, the center of gravity has shifted over time, largely in response to consumers looking for solutions that cater to their needs, outside the clutches of big incumbents. In recent years, neobanks have attempted to answer this call, challenging the pricing and complexity of traditional banks, while earning customers’ trust through simplified, digital-only experiences and low-to-no fees. Neobanks have enjoyed a modicum of success, particularly in niche verticals where they offer dedicated products for specific personas. On the whole, however, they have had a difficult time with mainstream customer acquisition and have yet to be profitable at scale.
I would argue that the current trend of democratizing financial services holds even bigger potential for disruption. I believe that embedded banking solutions, aided by open banking initiatives, are uniquely positioned to overcome the customer acquisition challenges that neobanks face, with the clear benefits of providing financial services where there is already a captive audience of customers. Doing so enables any company – financial or non-financial – to expand their native offering, create new revenue streams, and better serve customers across their ecosystem. Banking-as-a service offerings are just the beginning. There is far more room for growth within the embedded finance movement.
While embedded payments and lending solutions are already available in the market, embedded insurance offerings are now beginning to establish a foothold. Shopify is a great example of a company that has adopted an embedded finance go-to-market strategy, and it’s clearly paying off. They’re providing e-commerce businesses with a comprehensive suite of solutions to accommodate all of their financial needs under one single roof. When it comes to the big picture outlook on the future of the fintech landscape, we can expect to see more companies embrace an embedded finance business model and also the expansion of embedded finance into more verticals like investments and taxes.
Supply chains are at a tipping point
Yuval Tal, Managing Partner, Team8
The COVID-19 pandemic has exacerbated pressures within the global logistics space. Intermittent periods of forced closure, travel restrictions and pandemic–induced bursts of consumption, alongside a limited capacity of ports, container ships, and truck drivers, caused havoc for supply chain operators. Due to the current supply chain chokehold, only about 34% of container ships arrived on time in September 2021, compared to 56% the year before. This unprecedented congestion makes fleet management nearly impossible. In addition, rising consumer demand, limited supply and uncertainty around delivery times is causing crazy, volatile price increases. This reality of protracted delivery timeframes and abnormally high and unpredictable transportation charges simply isn’t sustainable.
Here’s one for you. How many companies does it take to move just a single shipment? Well, about 20. That’s right, about 20 companies – ocean, air and ground carriers, freight forwarders, ports and airports, and customs brokers. What was already a highly fragmented industry is now at a tipping point. Without unified infrastructure in the industry, the level of connectivity between players is low, particularly in ocean transportation but also for trucks. This causes little to no real-time data flow, not enough visibility around container location, and ambiguity around estimated arrival times. In addition, companies in the logistics industry typically insist on cash against documents, and are resistant to using digital payment systems that could provide meaningful efficiency gains.
The industry imbalances listed above can impact any importer. High transportation costs not only affect an operator’s bottom line, they are an important factor in any business decision. Moreover, the instability and insecurity around arrival times is forcing importers to rethink all their inventory management strategies. In the coming years, I suspect we will see a flourishing intersection with fintech – from payments to lending and also insurance. I also believe we will see the industry’s infrastructure get rebuilt for freight forwarders, providing new solutions to improve visibility and enhance transportation predictability.
Mainstream use cases for NFTs
Ronen Assia, Managing Partner, Team8
NFTs (Non-fungible Tokens) have become commonplace in modern day vernacular thanks, in large part, to bizarre images of bored apes fetching jaw-dropping prices. A sign of the times perhaps. But I actually don’t view NFTs as a reflection of society’s descent into idiocracy. Quite the contrary — I see huge potential here. Already, many artists, musicians and other entertainers are using NFTs to strengthen their earning power with digital representations of their content. This is an area I have my eye on, and I believe the potential of NFTs extends far beyond that of a digital zoo. Research suggests that 96% of Americans don’t understand the basics of NFTs, crypto, and DeFi; clearly the current focus on digital art isn’t translating to the everyday user. I believe other use cases will be key to the mainstream adoption of NFTs, part of which will see their deployment within the experience economy. Let’s take concerts as an example.
In the live music scene, profiteering by scalpers who buy up tickets exclusively for the purposes of re-selling at higher rates on the secondary market, has always been a major issue. Concert venues don’t want to be selling a ticket for $50, for it then to be sold on the secondary market for $300, where they don’t receive any spoils on the re-sale. If a royalty mechanism – represented as an NFT – is built into the ticket itself, the venue and artist can receive a fair share of the commission on tickets sold in the secondary market, a win-win situation. NFTs can ensure royalty distributions are always aligned with the interests of the concert venue and musician throughout the ticket’s lifecycle.
Looking ahead, the potential for NFTs to transform the music and entertainment landscape is boundless. We could see bands creating NFTs around a specific piece of work, and releasing it as a limited edition album with a finite number of copies available. In addition to providing fans with exclusive access to content, artists can ensure that profits aren’t being siphoned by middlemen. I also think that once the infrastructure is in place to facilitate NFT-driven streaming, digital content providers will be prompted to rethink their business model. As powerful new tools for creator empowerment, NFTs can help democratize content distribution globally, elevate culture over corporate interests, and forge stronger connections between artists and their fans — a vision worth going ape over.
Super Apps: The new holy grail of fintech or the wrong bet?
Galia Beer-Gabel, Partner, Team8
2021 was a record-breaking year for VC investments and capital markets in fintech. We’ve even seen fintechs acquiring fintechs – PayPal recently acquired Paidly for $2.7 billion – moves that demonstrate the ongoing maturity of the space. With growing competition and high customer acquisition costs, mature fintechs (Block, Klarna, Stripe) are focusing on selling new services to widen their appeal and drive revenue. By acquiring other fintechs themselves, and gradually offering more services, they are on the path of becoming a Super App – in which platforms provide seamless access to a comprehensive range of tools and services that can accommodate everything customers need, without having to leave their ecosystem. Fintech platforms are also advancing their all-in-one ambitions by embedding 3rd party services that lie beyond their core offering – solutions for taxes, accounting, commerce, crypto and more.
An example of the Super App movement can be seen in Block’s (formerly Square) expansion into BNPL services through the acquisition of Afterpay for $29 billion, as well as into Tax solutions with the acquisition of Credit Karma Tax business. Continuing in this vein, Block is creating a DeFi platform based on Bitcoin, and investing in other in-demand services. But the most noticeable move is the decision to change its name to Block, so the “Square” brand will be reserved for the merchant-payment business, while Block will be the super-app name. Another relevant example is PayPal. It recently launched an app that includes savings and bill paying functionality, while allowing customers to benefit from shopping and loyalty programs. Additional features are likely to be rolled out in the future, and other companies such as Affirm, Revolut, and Klarna are adopting similar strategies.
API as a Service has made it easier than ever before for platforms to integrate new services. The Super App concept isn’t just being embraced exclusively by financial players, but also by non-financial companies that are keen to better serve customers within their ecosystem. The success of the Super App movement might not be as prolific here as in the Far East – where it originated – due to the sheer volume of competition, but it has massive potential to take hold. Instead of educating customers to download a new service or change their habits, we will see the FI industry continue making its services available where users are already – such as on social media and e-commerce platforms.
In 2022 we can expect that fintechs will be battling even harder to become the centerpiece of consumer lives by embracing the Super App model and embedding more services into their apps. But one might ask whether they are best suited to succeed with this strategy. Or maybe we can expect the super app trend to be won by e-commerce players and social media platforms, which are already super serving their users with a broad range of in-house financial services.
Final thoughts
On review of the four trends explored in this piece, it’s clear that fintech-led innovations may very well drive another year of unprecedented growth while delivering a diverse set of efficiency gains across verticals, from NFTs to global supply chains. In parallel, the Super App and embedded finance trends will continue to redefine the fintech playground, powering a sea-change in how financial incumbents, fintech startups and non-financial players approach customer acquisition and retention, all in the name of relentless user-centricity.
Team8 partners with top-tier entrepreneurs to identify new market opportunities and build fintech companies that are uniquely positioned to capitalize on these trends and others, across the global financial landscape.
