Fintech Sector Financing Update

Funding in the fintech sector increased 17% quarter-over-quarter, after two quarters of declines, to $9.3 billion according to CB Insights' recent State of Fintech report. Despite the funding increase, the number of deals continued to decline globally, continuing the decline since the fourth quarter of 2019. In the second quarter of 2020, 397 global venture-backed fintech deals were completed, compared to 452 deals in the first quarter. The number of deals hit a monthly low in April with 127 deals, but rebounded in June to 141 deals.

Source: CB Insights The State of Fintech Q2'20 Report

There was one new fintech unicorn birth this quarter, Upgrade, which is an online lending and credit monitoring platform. To date, there are 66 venture-backed fintech unicorns globally having a combined value of $248 billion. Fintech mega-rounds, or capital raises over $100 million, reached a historic high of 28. Digital banking companies and companies focused on sales, trading, analysis, and infrastructure solutions for financial institutions comprised the majority of mega-rounds. The rise in bigger capital raises can be attributed to continued economic uncertainty and continues the trend of successful private companies staying private longer. However, the recent increase in IPOs may affect this trend. This quarter, there was an increase in IPO filings by fintech companies. Notable IPO filings or completed IPOs this quarter include Lemonade, nCinco, and Rocket Companies. Fusion Acquisition, a fintech SPAC, raised $305 million.

Source: CB Insights The State of Fintech Q2'20 Report

Notable fintech trends include increased embedded fintech, or the integration of financial products by non-financial companies. For example, AirWallex integrated the embedded function of B2B payments and the U.S.-based company States Title integrated the embedded function of mortgage closings. M&A activity in the payments/banking infrastructure and wealthtech sectors increased. Acquisitions of banking and payments companies include Sofi's acquisition of Galileo and Mastercard's acquisition of Finicity. In wealthtech, competition led to consolidation this quarter as well as to an increase in funding. Personal Capital was acquired by Empower Retirement, Folio by Goldman Sachs, Advisor Engine by Franklin Templeton, and Motif by Charles Schwab.

Originally published 12 August, 2020

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