2022 Fintech and Insurtech predictions from a European VC

1. Insurtech capturing new product lines 

Insurtech startups are on the rise and will keep booming in 2022, with emerging risks such as cyber risks, pandemics, and climate-related risks seeking proper coverage. But also a strong trend towards a “more open” insurance industry, as it was for open banking a few years ago.

• Cyber insurance
  Our discussions with industry players highlighted the discrepancy between offer and demand for Cyber Insurance, with demand growing much faster than the offer. Historically written premiums have increased from $900m in 2015 to more than $1.6bn in 2020, and are poised to reach $20bn in 2025. On the downside, the loss ratio peaked 72.8% in 2020. Companies with better and faster technology or distribution, in a market with huge demand, can find a territory to thrive in. Examples such as Cyberline, Cyberdirekt, Finlex (disclaimer portfolio company — “DPC”) and Stoik have spotted the opportunity in France and Germany and we believe much more awaits us. Finding risks carriers and strong up-to-date and international expertise to emerge as the Europe-based Coalition or At-Bay are still big challenges to be cracked and we believe 2022 will see the first movers taking the stage
• Pandemic and climate change insurance
  In 2020, COVID-19 generated $55 billion in losses for insurers, the second-biggest loss event in insurance history after Hurricane Katrina. As the pandemic enters its third year, industry leaders have already been warning us about the uninsurability of pandemics. However, a clear protection gap has appeared, with rising conflicts among insurers and policyholders on COVID-19 linked claims. This leaves room for neo-insurers and brokers to try to capture value. Once again, finding capacity will likely be the biggest challenge here.
  Throughout the world, the frequency of climate-change-induced natural catastrophes is increasing, and the severity is also growing a lot, then, it’s hard for the insurance industry to keep up. First movers as Descartes Underwriting (DPC) have already positioned themselves and are gaining tremendous momentum. In 2022, we expect players more and more players to use climate-related data to thrive as their superior understanding of these new risks and technologies are able to protect millions from risks and losses incurred due to climate change.
• “Open insurance”
  We believe we will soon witness Open Insurance, as it started for banking a few years ago. The 2 sectors often face the same challenges and regulatory pressing (a good example is the Basilea agreements).
  Although we are at the dawn of the regulatory process (EIOPA, the European Insurance, and Occupational Pensions Authority, has launched a discussion paper earlier this year in order to consult the public on possible regulations aimed at facilitating the usage of Open Insurance), we believe there is room for insurtech to move ahead of time and start laying down the first connectivity infrastructure which will allow, for example, customers to switch policy in a few clicks or gather any policy they have into 1 dashboard. Players like Insurely, have already stepped in the game and others will definitely join the pack.

2. “Green” is the new black 

The increasing interest for a greener economy is a trend we believe is here to stay and will definitely be on the rise for the next year but also the next decade. In addition, where European innovation usually tends to replicate US successes and trends, we do believe European green fintechs have the opportunity to lead the way globally. This is particularly true for the 2 categories we defined in 2021, which are B2C players and for which Europe has a cultural edge, and B2B players, for which Europe has a regulatory edge. More about this here and here.

• B2C players — Demand-driven
  The emergence of these players is mostly driven by consumers, looking for alternatives to their traditional way to bank or invest. There is a growing market of individuals looking more intensively for ways to live in a more sustainable way and contribute to a better world. Their finance is 100% part of the change and they will be more concerned about the negative impact their money can have on the planet. Hence we expect a bigger adoption of new products and brands such as Tomorrow, Helios, or Carbon Equity, in the next year, driving the entrepreneurs’ and investors’ interests. We also expect these direct-to-consumer green fintechs to somehow reshuffle what we know about unit economics, with core niche consumers, ready to pay for services they know are in line with their values.
• B2B players — Regulatory driven
  European Union is leading the way in terms of regulations for a greener and more transparent financial ecosystem. Several texts are already live, such as the NFDR (Non-Financial Reporting Directive) requiring the biggest corporates to disclose information on the way they operate and manage social and environmental challenges, or the SFDR (Sustainable Finance Disclosures Regulations) requiring the main Asset Managers to disclose on the integration of sustainability risks and the consideration of adverse sustainability impacts in their processes. These regulations are poised to evolve both i) in scope, to include progressively smaller companies and Asset Managers, and ii) in requirements, to expand areas as well as the level of detail on which targetted actors will be required to report. Given the intense regulatory activity, we expect a new breed of fintechs attacking this vertical to help corporates and investors be compliant, but as well to solve core challenges like access/analyze/structure data easily, workflows, direct stream of reporting. Companies such as Greenomy, World Favor, or Earthbanc are already active in space, with no clear edge or winner yet.

3. All assets classes to the masses 

The past lustrum fintech focused on improving consumers’ access to most of the straightforward asset classes, being equity and ETFs (think of Moneyfarm, Trade Republic, and Freetrade in Europe or Robinhood and Public in the US) and crypto in the last couple of years. We think in 2022 more asset classes will be made accessible to the masses.

• Smoother access to equity
  The past couple of years we have seen mobile stock trading picking up among retailers, peaking at the end of 2020 in US at 15% of all traded volumes. GenZ in particular were highly involved in the growth, thanks to the gamification and the social elements introduced to stock investing. However, all this is possible thanks to an underlying software infrastructure (the likes of DriveWealth or Alpaca) that allows, for example, fractional trading or 0-fee models. This is particularly true for US stocks, but what about other markets? In Europe companies like Wealthkernel, Lemon Markets, or Bitpanda Whitelabel, are trying to build the pipes to ease the access to EU equities.
• Ticket to private markets
  There are diverging opinions on the relative performance of Private Equity over public companies, yet one thing is certain: PE and VC have been an exclusive club. As investing in a Private Equity/Venture Capital fund usually requires a 7-figure or more ticket and Angel Investing demands a certain network and knowledge, most (retail-like) investors had to stick to public markets. Furthermore, as companies stay private longer and value creation disproportionately shifts to private markets, retail portfolios are left behind. There is a clear momentum for innovative companies to democratize access to private markets. This year, we saw Moonfare raise $125m in Series C funding after reaching in excess of €1bn AuM. On the VC side, Vauban, an “AngelList-like platform”, raised a £4.7m Pre-Series A. Crowdfunding has also played an interesting role to involve share value directly with users and crowdfunding platform could see a consolidation moment (like for Seedrs). In 2022, we expect a further development of this segment as more and more investors will want to enjoy the returns of investing in private markets.
• Web3 pool party
  2021 was a blast for the “crypto” ecosystem. The market cap of the 8923 crypto available out there surged to $2.39 trillion on the last day of December. NFTs went mainstream, surpassing $13 billion in trading volume. M&A volume in the industry reached $6.1bn, up 130% YoY. 2021 has shown the first sign of the consolidation of the core crypto infrastructure, with on-ramp services like Moonpay, Mercuryo.io, and Ramp raising more than $700m combined and custody solutions like Copper, Finoa, and Ledger raising hundreds of millions of dollars each. In 2022, we expect a further increase of crypto adoption (both CeFi and DeFi) via improved UX (also thanks to “BaaS for crypto” players like Merged or Fiat Republic), the spread of community ownership (e.g. using DAOs to reshape syndicates or tokens to incentivize and reward users and contributors) and the surfacing of new distribution models like P2E (Play to Earn) gaming which has the potential to onboard millions in the coming months. We think in 2022 we are going witness the first “permission-less” KYC experiments (fore more of it take a look at Eurazeo’s deep-dive here) and strongly believe that NFT trading will be more commoditized as day-trading apps and neo-banks such as eToro or Revolut might add such functionalities to their platform to compensate the volatility on their token trading revenues. Eventually, as many noted, “corporate venture” from most successful founders and companies like Coinbase or Wintermute, have already set up their own funds to back crypto projects, further fuelling Web3 expansion.

4. Fast-evolving late-stage scene 

2021 was the year of the emergence of tech indexing investment strategies in the private space from the likes of Tiger, Coatue, Softbank, and other HF/crossover types of tech investors. Not only are they betting on the fact that companies are staying private longer but they are pushing the boundaries of what typical deals used to look like and pouring more money to get a bite in an ever-expanding TAM (here and here).

More confidence in what the future holds, faster growth and black hole like gravitational attraction for large digital platforms, more money in, higher valuations mean that we’ve seen the largest christening of unicorns in Europe in 2021 (+70). Obviously, the European tech scene is blossoming, so what should you do when you have so much cash? What’s the next bigger thing?

• The great re-bundling: it’s been brewing for some time now, but the cycle is now back into a re-bundling mode in the B2C and B2B banktech and CFO tools space. As companies grow into scale-up mode they need to build leverage on their customer base and increase CACs. All roadmaps start to look the same and the focus is more on execution (see here), but expect to see more platforms, more super apps, more financial cockpits.
• Consolidating the European market: Europe is one of the biggest economic regions but still very much fragmented per country or “regions”. While a historic playbook was to nail your home country and then get to the US or Asia, we see more and more focus on continental expansion. Some regional players in categories like spend management (Pleo, Soldo, Spendesk, Mooncard) or SMB neobanks (Revolut, Qonto, Starling, Memo Bank) are already demonstrating it.
• Tech M&A comeback: with high paper valuation and strong cash reserve there is inevitable interest in acquiring competitors or adjacent teams/products/businesses in order to achieve pan-European or super app status. We can expect stronger M&A activity and even up to large $B deals (Raisin/DS, or DH/Glovo like).
• Breaking the ceiling: we already have some decacorns in Europe like Adyen (listed though), Klarna, Revolut, Checkout, Celonis but there is room for more. Provided the previous points are tackled, the obvious next step is to have a few more in 2022. There are some contenders that are close among which we can cite: N26, Rapyd, Allfunds, Mollie, eToro, Mambu, Trade Republic, Blockchain.com… Having said that, why not see the first “dragon” (>100bn valuation) in Europe. Do the Collison brothers count?

Having said that, there’s much to do to spend invest that money wisely and with rising interest rates, cooling multiples, 2022 should also be a year of reckoning :

• Structured Deals: last year, we have seen American funds pushing valuations to the moon, but also structuring deals in unprecedented ways. For instance, they included clauses guaranteeing them a minimal return on investment. We believe that these kinds of clauses will be seen more and more in Europe, as U.S. funds get more entrenched in the ecosystem.
• IPO: now is the time! Companies do tend to stay private for longer, but for the model to work, investors still need to get their money back, especially crossover funds. Despite the emergence of private secondary marketplaces, in unicorn territory, the listing is the ultimate way out to monetize massive chunks of capital. 2021 has been disappointing in terms of the number of European IPOs (or SPACs). There’s some tension currently on the market but the window still looks open, let’s try again in 2022.

5. More BNPL calls for more regulations 

Anyone remotely interested in fintech will have heard of BNPL in 2021. If not, just tap here.
Fact is that the category has probably been the most explosive of 2021 (see here, here, or here). In 2022, we believe BNPL will expand beyond pure players to become embedded (following the path of his sister “card”) and ubiquitous. However, Regulators will remain on the look, creating headwinds for this industry.

• Challenger Banks and other fintechs joining the BNPL party
  In September 2021, Monzo unveiled “Monzo Flex”, its own 3-installments, 0% interest BNPL solution. Curve also unveiled its own “Flex” BNPL product (or Curve Flex) in September 2021. Not to be outdone, Revolut CEO the same month the company was developing its own 3-installments BNPL solution. Which one will be the next?
• “If you can’t beat them, join forces”
  BNPL stepped on the thumb of many incumbent financial institutions. Initially sidelined, now it’s a must-have. If M&A is happening, BNPL will be top of the list, in particular smaller local players with deep roots rather than big brands. And for the smaller regional banks or merchants and PSPs, there is room to shake hands with BNPL-as-a-service companies like Divido or Banxware.
• Tighter oversight from the Regulators
  UK has already eyed the problem with rising debt exposure for consumers using BNPL. According to Credit Karma, as of October 2021, 7.7 million Britons had £4.12 billion to repay from BNPL purchases. That same month, HM Treasury launched a consultation on how to regulate the industry, saying that a balance would have to be found between protecting consumers and fostering innovation in the consumer lending industry. The European Commission proposed an update of its rules in June to protect consumers taking on debt online. We expect a regulatory push on BNPL to increase significantly in 2022.

6. Orchestrating everything 

It is no secret that scaling companies is the hard part of an entrepreneur's journey. Moving from “one country — one product” to global operations is far from being trivial. Managing payment and finance-related tasks is key for any scale-up in expansion mode; at the same time, it is one of the most cumbersome and complex part of the scaling process. Think about accepting local payment methods (standard and alternative) or complying with local tax authorities or, again, paying employees sitting in different countries. Now think of doing this for 10 countries at the same time and make sure to be able to reconcile everything into a unique golden source.
So far, most businesses out there have either leveraged on third-party providers (often with sub-optimal tech results) or built the infrastructure in-house (not a core activity with high maintenance needs). Enter headless API platforms, no-code solutions, and orchestration layers which, standing on the shoulders of the previous generation of fintechs, are simplifying and solving the pain of kicking off a business or scaling operations (yes, we love tech compounding!!!).
We believe 2022 will mark the surge of these players in multiple areas of fintech.

• Onboarding clients
  Identity verification (“IDV”) is often the first point of contact with customers. Doing wrong there is bad. In the past decade, we witnessed the rise of IDV software that allowed remote onboarding of millions of users from hundreds of countries. However, there is no one-fits-all solution and often companies patch together multiple providers to get the best in terms of country coverage, workflows customization, depth of screening, and so on. A new breed of products targeting developers with pick and shovels toolsets (e.g. Truework) or targeting business ops via no-code applications (e.g. Helloflow or TransactionLink), is on the rise. We believe IDV is a great wedge to start getting traction and then expand into other areas such as credit scoring or compliance.
• FinOps and Embedded finance
  We have often heard the name of Embedded Banking (“EB”)or Banking as a Service (“Baas”) being associated with launching a banking-like business (e.g. a large retail store offering cards and accounts to their customers). However, EB could be much more than that. In fact, EB use cases (worth mentioning that are still very nascent) can span beyond the build of traditional banking products to embrace orchestration of the finance back-office (e.g. automating payment inflows/outflows or harmonizing multiple ledgers into a golden one). It’s not a secret that there are many EB startups (maybe far too many 😚) acting with multiple models (from pure software like Tuum, to license+tech like Swan or low-code finance widgets like Aurelia). 2022 will definitely outline the first winners / best models in this space.
  Another vertical we are increasingly focusing our attention on is all that is PaymentOps streamlining. No-code players like Primer or WhenThen are radically challenging PSPs by offering orchestration solutions that give merchants full power in shaping workflows and picking the best they need.
• Paying employees
  Paying employees is often outsourced or disregarded as a complex and low-value activity by many. We spent quite some time digging deeper and resurfaced with a core takeaway: mastering payments directed to your internal customers (your employees) delivers a true competitive advantage in terms of talent hiring and retention, geo-expansion, back-office leanness, data, and cash flows.
  However migrating payroll is complex and finding the right partner with the perfect geo-coverage / pricing is far from being easy. We believe there is room for new players (e.g. Zeal in the US or Symmetrical in EU) to build the front-midware piece of the payroll stack while orchestrating third-party providers to deliver a full-stack experience, enriched with added value services like salary streaming or employee control on data.

Time to dive into 2022 🛀

Even if we love to share our predictions at each beginning of the year, we are far more excited by taking an active role in shaping them!

If you are a FOUNDER of a fintech/insurtech business, we want to hear from you! Feel free to reach us out on LinkedIn or write us here