Despite claims of a financing bubble, investors poured more money into fintechs in 2021. Traditional institutions are getting involved and spending in R&D to compete. Lower values may affect acquisition activity and delay money flow. Fintech financing bubble predictions date back years. It shows no indications of slowing until 2022.

1. Fintech boom raises banks concerns, tech
spending - Bahaa Abdul Hussein
Despite claims of a financing bubble, investors poured more money into fintechs in
2021. Traditional institutions are getting involved and spending in R&D to compete.
Lower values may affect acquisition activity and delay money flow.
Fintech financing bubble predictions date back years. It shows no indications of
slowing until 2022.
According to Bahaa Abdul Hussein, global fintech investment increased in 2021 to
$132 billion. Fintech businesses raised about $35 billion in Q4, the second-largest
quarter ever for fundraising. One in four $1 billion-plus unicorns (firms) founded in
2022 was a fintech.
Fintech funding may not be so sunny for the rest of 2023. While Insider Intelligence
anticipates even more financing in 2023, other analysis point to reasons that may
lower spending.
Insider Intelligence predicts a prolonged fintech financing surge in 2023 for various
reasons. Investing in new sectors like open finance and blockchain, crypto
exchanges generating cash, and huge financial organizations investing in fintechs to
automate processes.
Falling tech stock prices in early 2023 may discourage investors from backing
fintechs. Eastern European war and turmoil might be an influence.
Reasons for boom in fintech
Government pressures partly explain the surge in fintech funding over the past year.
The government has been aggressive in promoting the country as a fintech hub and
attracting funding and startups.
The Financial Conduct Authority built a sandbox for firms to test new solutions with
actual customers. Working in the FCA’s sandbox provides fintechs legitimacy with
investors and customers, says Deloitte.
Fintech financing rose in 2021 as the economy recovered from a Covid-depressed
2020 which a leading firm disagrees with.
“The high rise in fintech financing in 2021 was not merely due to favorable
year-over-year comparisons,” the business writes in a study on VC funding to U.S.
fintechs. Funding dipped from March to April 2020 but rebounded fast. In the fourth

2. quarters of 2020 and 2021, the amount raised climbed by 95% and the volume of
transactions surged 40%.
Benefits for bank
Banks no longer reject fintech businesses, most consider them a competitor for
consumers and, increasingly, a partner. These patterns suggest that financing for
fintech won’t stop soon.
Banks have several possibilities. One is to finance fintechs more, so they can develop
digital skills. Medium and small banks are joining the larger banks in following this
strategy.
National Law Review: “These smaller banks recognize technology is vital to their
long-term viability.” Many have “partnered” with a fintech startup, possibly to improve
the bank’s products, services, or operations. Fintech and banking are symbiotic.
A bank may be a good fit for a fintech startup seeking development financing, the
paper says. Banks don’t make speculative bets, but they do invest in technology.
Forward-thinking financial institutions should invest in transformational partners and
compliance. Niche brands may help a bank distinguish, tap existing markets, and
enter new ones.
Banking Industry response
Banks and credit unions are expanding R&D investment in response to fintech
financing. While many fintechs aren’t direct competitors, some are still competing.
SoFi, Varo Bank, and Lending Club have acquired banking charters.
Insider Intelligence predicts U.S. banks’ IT spending would rise from $79.49 billion in
2021 to $113.71 billion in 2025. This covers both major and small banks, where IT
spending and customer-focused digital teams are “attached at the hip.”
Bank Director’s November study noted that fintechs and other non-banks are driving
community banks to invest more on technology. Tech companies, retailers, and
digital banking were not competitive threats three to five years ago.
Possible obstacles
If a worldwide epidemic didn’t prevent fintech funding, what will? Some indications
point to industry challenges.
Many firms that went public since the start of 2020 are selling below their IPO
pricing, and growth stocks are often unpopular with investors.

3. As fintech stocks have dropped, some investors have demanded lower startup
valuations, Forbes reports. If this trend continues, banks might pay less to buy
fintechs as they improve their digital capabilities.
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