Here’s where YC’s latest group of founders are placing fintech bets TechCrunch

The last of Y Combinator cohort of founders have opinions on the future of fintech. A fifth of the accelerator’s summer 2022 batch, which covers 240 companies, is working on solving problems in the financial space. The locations range from building the Square for micro traders in Latin America to creating a way to invest in your favorite athlete.

And while the locations are diverse, some concentrations show the primary ways in which a group of vetted entrepreneurs think about the changing landscape in light of capricious venture capital markets, a downturn, and some public market meltdowns. Unsurprisingly, the most popular problem area among the fintech cohort in this batch is payments. The story really begins with which focus fades into the background: neobanks.

Thank you neobanks

This year’s cohort includes 11 neobanks, a trend we’ve seen start to take off with YC’s W22 cohort which also included 18 such firms. That’s a substantial increase from the 1-2 neobanks per lot that made the cut for YC in 2020 and 2021, suggesting the accelerator is doubling down on founders aiming to build the next ‘one-stop-shop’ for fintech services. .

The founders of the neobank she has chosen to back this summer tend to have highly specialized knowledge of niche markets, giving them the potential to capture the entire wallet share of specific populations they know well. rather than trying to cultivate a broader but perhaps shallower appeal. Nearly half of the neobanks in this batch are based in the US, while the rest are spread across the UK, Switzerland, India, Nigeria, Senegal and other geographies.

Pivo, based in Lagos, Nigeria, focuses on cargo carriers in Africa, Hostfi is looking to tap into the short-term rental host market, and Pana says it’s targeting the 62 million Latinos living in the United States, to name just a few examples from the latest batch. The three companies are founded by a Nigerian port operations executive, an Airbnb superhost and a Latin American-focused digital banking executive respectively, showcasing these founders’ deeply targeted approach to more specialized segments of the market where they have previous experience.

YC’s concentration of neobanks seems somewhat contrary to general fintech sentiment these days. There have been plenty of examples of why neobanks – despite being low-cost, savvy banking solutions – don’t work well: despite mega-ventures, there are big losses . Strong growth is possible, but often at the cost of increasing operating costs.

Yet, while some saw the industry’s big losses as the end of neobanks, Chime offers hope. The well-known neobank turned EBITDA positive at the end of 2020, showing that the cohort can reach a level of economic health and end some criticism. Yet the world of banking is an increasingly competitive space, as virtually every fintech company battles for consumer wallet share. Neobanks are unlikely to be a winner-takes-all market. On the contrary, more specialized starters may be better suited to meet the specific needs of a given community holistically. And this bundle supports that achievement.

International fintech remains the focus of YC Demo Day

India has always been Y Combinator’s favorite geography to invest in, outside of the United States. The last batch, the Indian founders of YC seemed to be concentrated mainly in the financial services sector, around 30% considering that out of 36 Indian startups, 11 belonged to the fintech world. Then, it was a contrast to previous projections, in which most Indian YC startups belonged to the B2B services category.

While last year showed a greater focus on fintech, this year the tides have reversed slightly. Of the 21 startups supported by YC in India, this cohort, around 40%, or eight startups, fall into the fintech category. Fintech is still a major area of ​​focus, but B2B has taken the lead in geography: 47% of India’s YC startups are focused on the corporate world this year.

The slight move away from Indian fintechs does not necessarily indicate that YC cares less about fintech startups globally. The accelerator has supported eight fintech bets in Latin America, accounting for 57% of its total bets in the region this season. Latin America’s fascination with fintech continues, it seems, perhaps supercharged by the success of Brazilian neobank Nubank, which went public and officially became Latin America’s most valuable listed bank at the end of last year.

African fintech has a similar story, with five of the eight accelerator investments working in the fintech space. There’s Anchor, a branchless banking platform that has already raised over $1 million for its platform, Bridgecard, a card issuer for Nigeria, and erad, a funding platform. non-dilutive for startups in the Middle East.

The future of friendly investment conditions

Despite a slight slowdown in fintech funding for private companies this year compared to the ultra-hot market of 2021, the sector remains much hotter than it has been in previous years, accounting for nearly 21% of total funding. VC deals in Q2 2022. YC is following the same trend, with pre-seed perhaps receiving a boon of enthusiasm as late-stage companies like Stripe or publicly traded fintechs like Robinhood and Affirm , don’t exactly feel stable right now.

Here is a breakdown of the percentage of fintech companies in the latest accelerator batches:

As with any industry, we could see competitive tensions within the accelerator itself start to breed, depending on where startups go from here. Crypto startups Eco and Pebble, both YC participants, had a feud earlier this year when Eco’s CEO made allegations against Pebble’s founders for “copying and pasting” significant parts of his business.

The global fintech space is a bloodbath right now as the market has become saturated with companies all playing in similar fields trying to compete for the same customer groups. YC startups are no exception – only time will tell if their approach of focusing on international companies operating in niche markets will pay off or if consolidation in the industry has already gone too far for new startups. are enjoying resounding success.

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