Tag: embedded banking

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How can fintech startups outlast the VC winter?

Peter Hazlehurst Contributor
Peter Hazlehurst is the CEO and co-founder of Synctera. He is an entrepreneur and philanthropist with nearly 30 years of experience in creating financial products for banks, fintechs and large tech companies.

The decade-long summer of free money is over. Venture funding declined by $90 billion (53%) in the third quarter of 2022 from a year earlier and fell $40 billion (33%) compared to the second quarter, per Crunchbase data. That makes Q3 2022 the slowest quarter for VC funding since the start of the pandemic.

However, in spite of all the crazy stories this year, there are real opportunities for aspiring fintech startups to become the new heroes of the multitrillion-dollar banking and embedded finance industry.

In particular, I’m hearing that investors are reluctant to fund future potential unless it comes hand in hand with concrete customer traction. So if you’re building a fintech idea and you need funding today, it’s vital to get your product into the hands of customers quickly.

How will you do that? By gathering feedback, using it to sharpen your focus and prioritization and ultimately rewarding your customers for helping you.

Here are three tips for achieving those goals:

  1. Get feedback and insights from your customers with a working product.
  2. Aim high for the long term, but don’t work on anything except your minimum viable product (MVP) in the short term.
  3. Always remember the problems you’re trying to fix for people and reward them for choosing you.

It’s critical to gather feedback and insights from your customers

Everything else being equal, embedded banking startups and new fintechs will live and die on the basis of the user experience they provide.

In this operating environment, startups have a better chance of impressing investors if they can point to tangible results.

What does that look like in reality? Prepare for these common questions before you head to an investor meeting with your pitch deck:

  • Who are your users?
  • What are the problems you’re trying to fix for them?
  • What do they like and what do they want?
  • Where are you going to meet them?

The only way to find these answers is to ship something real — a working product that people can interact with and use. That means everything you’re building right now should be in service of getting an MVP out the door.

I’m not saying, “Build it and they will come.” Far too many tech companies shut down shop because they were making solutions in search of problems. It is really easy to slow yourself down by thinking too far ahead in terms of what you need to create.

For instance, if you’re building a consumer fintech startup, do you really need to build your own payments processor? In my experience, that would take 10 to 20 engineers, about 18 months and millions of dollars, and they’d likely end up building something that may never see the light of day.

Eighteen months is a very long time in an environment where fintechs and embedded banking startups can get to market in three months, if not faster, according to Bain & Co. research. Moreover, speed begets opportunity: The study expects embedded finance transactions in the U.S. to surge to $7 trillion over the next four years, up from $2.6 trillion at present.

How can fintech startups outlast the VC winter? by Ram Iyer originally published on TechCrunch

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Nigeria’s OnePipe raises $3.5M to double down on its embedded finance offering

Last year, fintech API infrastructure players came into the African tech scene, ushering in Plaid-like services to businesses and developers.

And the attention on these companies, particularly from venture capitalists, spiralled into this year, with each significant player raising large seed to Series A rounds.

OnePipe, a fintech API company with a different play from the lot, joins the list today, raising $3.5 million seed to double down on its embedded finance offering.

African impact-focused VC Atlantica Ventures, a co-lead investor in OnePipe’s $950,000 pre-seed round last year, also co-led this seed round alongside Tribe Capital and V&R Associates.

New investors Canaan Partners, Saison Capital, Norrsken (the fund of Klarna founder Niklas Adalberth), The Fund and Two Culture Cap also participated. Existing investors Chris Adelsbach, Techstars, Ingressive Capital, Acquity, P1, Raba and DFS Lab followed on with new checks, alongside a few angel investors.

There are generally three main fintech API infrastructure plays. One is data and financial accounts aggregation (Plaid, Okra, Mono, Stitch and Pngme are some players in the space).

The second focuses on embedded finance and banking as a service, where Treasury Prime, Marqeta ply their trade. The third is core open banking pioneered by the likes of TrueLayer.

OnePipe’s original game plan was to create an API gateway that connected banks and fintechs under a uniform standard, a move that would allow the company to perform core open banking. 

But founder and CEO Ope Adeoye (self-described as the company’s chief plumber), on a call with TechCrunch, said upon continuous integration with these financial institutions, it became clear the company needed to pivot since it wasn’t generating many demand cycles.

And having struck partnerships with a few banks, OnePipe decided to take a step back and delve into the world of embedded finance.

Unlike open banking and data aggregation plays where a company needs to collaborate with almost every bank in the country where they operate, it’s not necessarily the case with companies offering embedded finance. That’s why OnePipe has six partner banks at the moment.

“The caveat goes like this, the moment you make a positioning play for banking as a service, all you really need is one partner bank that lets you go deep because the embedded finance [offering] is about depth and not breadth,” said the CEO.

“If you go for data aggregation or open banking in general, then you are going for breadth, not depth. So on our side, we said we’d rather go with tier two and tier three bands, where once you describe the concept to them, they get it. It powers their growth and is more valuable to them, unlike other larger financial institutions.”

By running API infrastructure on behalf of these partner banks and helping them monetize it, OnePipe works with non-financial institutions to launch and cross-sell an array of financial services such as credit, accounts and payments within their offerings.  

“We raised a round last year to focus on one use case of the partnership, which was to pull together the APIs of a fixed set of banks and offer embedded banking or banking as a service play,” Adeoye asserted. “Meaning, we make it possible for non-financial institutions, or businesses in general, to offer banking services to their customers.”

So an FMCG startup, for instance, can plug into a bank’s API managed by OnePipe and begin to issue accounts to customers, allowing them to make payments off those accounts and access credit when they need it.

With open banking on the horizon, the fintech-SME love story is just beginning

In the 10 months OnePipe switched up to this model, it has processed more than 6.3 million transactions worth over $46.3 million, the company said. These numbers are from over 1 million individual accounts and 138+ businesses, ranging from FMCG and retail to lending and agriculture.

OnePipe takes a percentage cut from transactions made on these accounts and shares with its partner banks. For loans offered via its APIs, OnePipe takes at least 1% of the loan interest from its lending partners and also shares it with the businesses and partner banks.

With what OnePipe has accomplished so far, Aniko Szigetvari, the founding partner at Atlantica Ventures, believes the company is not only deepening financial inclusion in Nigeria but the continent. 

“In our view, embedded finance is the next enabler for both traditional and financial service businesses to increase customer loyalty and revenue by offering a wide range of third-party financial products and revenue streams for their customers,” he said.

Though OnePipe is currently only present in Nigeria, it is making its first move beyond the country’s shores to align with Szigetvari’s statement.

OnePipe is going through a strategic partnership route as Adeoye mentioned that his company made a deal with African logistics and freight company Sendy to expand into other African countries. Per the company’s statement, the plan is to “pull a Stripe-Shopify-esque tag team.”

“We made sure that before we looked into other African countries, we were going in with a customer on the ground already,” said the CEO. “We did a deal with Sendy that made them participate in this round, and we will then deploy the capital for expansion. So as they go to Egypt, South Africa, we’ll be deploying with them and grow together.”

African startups join global funding boom as fintech shines