Venture Capital Poured $1 in Every $5 Into Fintech Last Year as Niche Players Target Vertical Markets

One-fifth of all venture capital invested globally in 2021 flowed into fintech companies, setting the stage for what industry observers expected might be a quiet start to 2022. Instead, January delivered a flurry of deals signaling how specialized the sector is becoming—and how far beyond traditional banking it now reaches.

The month's funding activity reveals a pattern that should interest finance chiefs: fintech is fragmenting into hyper-specific verticals, from fashion resale platforms that function as instant liquidation tools to accounting software built exclusively for therapists. For CFOs evaluating vendor relationships or partnership strategies, the implication is clear—the "one-size-fits-all" approach to financial services is giving way to products designed for the peculiarities of individual industries.

Among January's notable deals, Twig, which describes itself as a "circular economy fintech," raised $35 million in Series A funding. The company operates what amounts to a bank account that lets users upload inventories of their possessions—primarily clothing and electronics—and instantly convert those items to cash. It's essentially Cash App meets iBuying, except for retail goods rather than real estate.

Responsible, another fashion-focused player, secured $6.6 million in seed funding from Barclays for its embedded finance platform. The company takes a different distribution approach, offering an e-commerce plugin that allows fashion retailers to buy back used clothing from customers instantly.

The deals illustrate what one fintech newsletter described as the "atomization of banking"—the theory that as financial services become more modular and embeddable, entirely new product categories emerge that would have made no sense in the era of monolithic bank branches.

Perhaps more telling for corporate finance leaders is the rise of what might be called "accounting-first" fintech. Heard, a startup that raised $1.3 million last March but gained renewed attention in January, provides accounting, payroll, and tax management services exclusively for private mental health practices. The company combines software with human accountants, targeting the specific compliance and billing complexities that therapists face.

Heard's model mirrors the playbook of niche neobanks like Daylight and First Boulevard, which combine software and human service for specific customer segments. The key difference: Heard starts with accounting rather than deposit accounts, reflecting a view that accounting functions as the "operating system" of a business's financial life.

For CFOs, the strategic question is whether this vertical specialization represents genuine innovation or merely repackaged commodity services with better marketing. The answer likely depends on how much a company's financial operations diverge from standard patterns. A mental health practice has billing rhythms, regulatory requirements, and cash flow patterns that differ meaningfully from, say, a software company. Whether those differences justify purpose-built tools—or whether they're better handled through configuration of general-purpose systems—remains an open question.

What's undeniable is that venture capital continues to bet heavily on the hypothesis that financial services can be carved into ever-smaller, more specialized pieces. Whether that creates value for end users or simply fragments an already complex vendor landscape is something finance leaders will need to evaluate deal by deal.