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Fintech investment rebounds in Q2 2020
After a pronounced pullback in investor activity during the early days of Covid-19, Q2’20 has seen renewed signs of activity as funding increased after two straight quarters in decline, new data from CB Insights indicates.
Despite the funding rebound, the number of deals continued to drop globally, continuing the decline since the fourth quarter of 2019. Funding increased 17% quarter-over-quarter (QoQ) to $9.3B in Q2’20. However, monthly deal activity hit a fresh low of 127 deals in April before picking up the pace in June, which saw 141 deals.
Fintech mega-rounds (capital raises over $100 million) hit a new quarterly high of 28 as the largest companies in the space raised additional funding. Mega-rounds have become more common as successful startups are generally staying private longer. However, the recent spate of IPOs and IPO filings may indicate the start of a shift in this trend.
Asia was the only continent without a dollar funding rebound in Q2’20. North America, Europe, South America, Africa, and Australia all saw an increase in fintech funding QoQ while funding to Asia-based companies fell 37% to $1.6B. However, deal activity in all regions was either flat or down QoQ.
There are 66 VC-backed fintech unicorns worth a combined $248B. Q2’20 saw just 1 new fintech unicorn birth, Upgrade, an online lending and credit monitoring platform.
CB Insights also highlighted five major fintech trends that have gained traction over the past few months.
1.Embedded fintech, which refers to the integration of financial products by non-financial companies into their offerings, is seeing growth across countries and applications.
Notable examples include AirWallex, which integrated the embedded function of B2B payments and the U.S.-based company States Title, which integrated the embedded function of mortgage closings.
2. A new generation of bank service providers are emerging, but incumbents are watching.
The growth of open banking has prompted continued investment into bank tech providers, such as Yapily and Setu. However, incumbents are beginning to provide open banking services as well.
Acquisitions of banking and payments companies include Sofi’s acquisition of Galileo and Mastercard’s acquisition of Finicity.
3. Covid-19’s boost to e-commerce is a tailwind for fintech providers
The pandemic is forcing consumers and retailers to shift online, with e-commerce’s share of US retail sales jumping to an estimated 27% in April 2020 — up from 16% in 2019 — giving fintech providers a tailwind.
4. In wealthtech, intense competition led to consolidation this quarter.
Asset managers saw spikes in new brokerage accounts, and wealth tech startups picked up large rounds of funding. As competition begins to heat up in the retail wealth management industry, incumbents are snapping up wealth management upstarts to expand their products and services.
In May, Franklin Templeton acquired wealth management software platform AdvisorEngine; Charles Schwab bought portfolio management company Motif‘s tech and IP; and Goldman Sachs bought wealth management custodian Folio.
5. Fintech saw a flurry of IPO filings in Q2’20
Multiple fintech companies filed for IPOs or went public in Q2’20, bucking the recent trend of mature startups remaining private as well as the drought of filings amid the early days of the pandemic.
S-1 filings in Q2’20 included Lemonade, nCino, and Rocket Companies.