The fintech boom attracted a lot of new investors and in turn, billions of dollars into the market. But some of that money went to projects that haven’t lived up to the hype and in 2016, we’re starting to see a pullback.

According to an advance copy of the latest CB Insights research, quarterly investment deals in the fintech space fell in the third quarter of 2016 to the lowest levels since the second quarter of 2014.

The broader pullback probably has something to do with the earlier established startups in the fintech and payments space that have managed to scale and create value. So with those success stories, investors are wondering what’s next.

But the hesitancy also has to do with how the industry has evolved, said Matthew Wong, senior research analyst at CB Insights. With a complex regulatory environment and the battle against large, legacy providers for consumers trust, establishing scale and brand continues to be difficult for consumer fintech startups who have become more interested in how they can partner with banks, insurers and other financial incumbents to deliver their products, he said.

And those investors who jumped on the fintech bandwagon without much knowledge of the space are finally starting to sober up and sneak out.

“There’s been a lot of momentum in the last few years and a lot of money flowing in. We’ve seen a lot of unfamiliar faces in the industry,” said Alex Maffeo, a principal at IA Capital Group, a New York-based investment firm that has spent the past 16 years focused solely on financial services.

“Financial services is extremely complicated and there are land mines everywhere,” he said. “It requires a narrow focus to invest intelligently. These aren’t social networking or photo apps; these are companies handling people’s money … and it’s extremely important they’re doing it the right way.”

Although there have been products and services yet to catch hold and companies that went under — namely the $2.7 billion valuated Powa Technologies — Maffeo would be reluctant to call anything in fintech a “flop” just yet. He’s bullish on the industry long-term, due in part to the slow pace at which consumer behavior tends to change.

Even with that, there are still technology plays and ideas that seem more like investor regrets than real winners.

Bitcoin/Blockchain: Buzzwords get tired

“There’s a lot of still open questions,” said Wong, which is one reason VC investment deals to blockchain startups is set to fall on an annual basis for the first time ever, according to CB Insights report.

While the report doesn’t show a breakdown of which companies in the space are getting funded, Vinny Lingham, founder of Civic, a blockchain-based digital identity platform and angel investor, said the numbers don’t show the whole picture.

For instance, Lingham said, early stage bitcoin/blockchain companies are still receiving venture money, and later stage companies like Coinbase and 21 Inc. raised large rounds last year that they’re still living on. So those big investments skew the data this year.

“Two years ago everything was Bitcoin, Bitcoin, Bitcoin,” said Maffeo. “And this year we’ve seen a shift away from that to the underlying technology.”

And with that shift comes more corporate experimentation instead of venture capital investment. For one, Visa recently announced it’d be backing Chain, an enterprise blockchain infrastructure project, for business-to-business payments.

“Institutional investors and commercial partners are more than willing to dabble in [blockchain],” said Maffeo.

According to Wong, some venture capitalists like Union Square Ventures are now looking more to open source projects in the blockchain space, which goes against what many new blockchain companies are moving towards--a private, more corporate-facing platform.

This has shifted the tone in the industry to a more collaborative one, which should help blockchain companies find strategic partnerships which are a huge boost for fintech startups.

Wong said that all five of the largest financing rounds to blockchain startups in 2016 included strategic investors and took 62% of all blockchain funding in the first three quarters. He added that over 40 financial services firms or their strategic investment arms have invested in a blockchain or bitcoin-specific startup since the start of 2014.

Bitcoin’s beginning contention is likely a reason it’s taken awhile to get these projects up and running in mainstream finance.

Also, Bitcoin’s initial use case in consumer payments also held it back in countries like the U.S. and U.K.

“There are so many credit and debit cards out there and so many ways that people interact at the point of commerce that are easy to use,” said Sean Banks, a partner at TTV Capital, an Atlanta-based Series A and B venture fund that’s focused on fintech since 2000.

There’s not a good enough incentive for consumers to switch payment mechanisms, so the easiest way to move to cryptocurrency is to start on the merchant and business side, Banks said.

Mobile wallets hit a hardware wall

Consumer-facing mobile wallets were a huge focus of attention and funding several years ago, but that has all but dried up nowadays.

Many earlier mobile wallet startups had hopes of their technology being bought or their team being acquired from these hardware providers. And that worked for LoopPay, a platform that mimics card payments with a mobile device, which was acquired by Samsung as a differentiator for its mobile wallet. But there were too many startup mobile wallets for all to find a home with the limited number of hardware providers.

While investors without a solid footing in fintech might have dumped money into these startups, IA Capital did not.

“If you’re starting a company with the goal of getting acquired, you’re already lowering your ceiling,” said Maffeo.

Maffeo is looking for new businesses that want to get real scale and go public in the next five to 10 years. For later stage growth funds where investors are putting money into already proven business models and generating meaningful revenue, the timeline is between four and five years.

“It was a war of attrition with players in the market with a distinct advantage, the hardware and operating system providers,” said Maffeo. For instance, Apple, Samsung and Google — the companies behind Apple Pay, Samsung Pay and Android Pay — had “day-one scale once they turned things on.”

Merchants like Starbucks and Walmart, which have their own branded mobile payment apps. also have a distinct advantage over startups because they can focus on their existing audience of loyal customers, he said.

Prepaid and other regulatory thickets

Another fintech sector that is facing headwinds is prepaid. After the Consumer Financial Protection Bureau (CFPB) released a 1,689-page report, presenting new guidelines for prepaid providers, those entities must dissect and adhere to the new rules.

“There are some estimates that the new regulations will cost NetSpend $80 million to their bottom line,” said Maffeo, whose fund invested in NetSpend before it was acquired by the payment processor TSYS in July 2013.

“It’s a major hurdle,” he continued. “In venture capital investing and entrepreneurship, everyone has this mentality to move fast and break everything, but that doesn’t work in financial services where you need to know the regulatory environment and follow it to the letter of the law.”

The above was seen in the early days of person-to-person lending. A couple of well-capitalized marketplace, such as Prosper and LendingClub, overcame an early regulatory crackdown but others met a very quick death.

And it seems, even now, LendingClub is falling under the nose of regulators with the Securities and Exchange Commission investigating the lender for issues with data integrity, contract approval and review processes.

That investigation looks as if it’ll stall the P-to-P lending industry overall as well.

“I think it was an overreaction that shouldn’t have really affected the industry as much as it has,” Maffeo said. “All it takes is one red flag and then people get very skittish about things.”

Payments and pricing

A serial entrepreneur, Lingham says startups have a natural edge over incumbents in highly regulated areas such as the payments industry, where there are lots of compliance costs.

“Compliance can be a big barrier for startups but you can also pull an Uber and buck the status quo,” he said.

These things take time, but with the right partners, that time can be diminished significantly. For example, Lingham’s former company, Gyft, a mobile gift card platform was acquired by First Data in 2014; and Venmo, the person-to-person social payment platform was acquired by PayPal and became the foundation of the company's mobile commerce strategy.

But in Europe, things are playing out differently.

According to Frank Seehaus, managing partner at at Acton Capital Partners out of Germany, in Europe most P-to-P payment services are provided for free by the banks.

“There might be a consumer proposition because startups' platforms are nicer digital platforms and more smoothly integrated but it’s hard to build a viable, sustainable business model,” Seehaus said.

There’s a similar quandary for robo-advising services. Many mainstream consumers get advising for free and won’t want to pay for these services, so the startups in this space will have trouble generating sustainable revenue, Seehaus said.

European investors, opposite of most investors in the US, tend to want a business model already planned out before they fork over cash to startups, said Seehaus. So many fintech startups that get funded in the US with investor hopes that they’ll monetize later, won’t find footing in Europe.

Know your investments

From the macro-perspective, investment in the fintech industry is tapering off because unknowledgable investors are stepping back.

“Those that got into fintech investing in the last 36 months may have decided it wasn’t a great long-term strategy for their funds,” said TTV Capital’s Banks.

But for experienced fintech investors like Banks, “The financial services industry has been a very heavy adopter and a group that utilizes technology more so than a lot of other industries.”

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