Digital Banks are the New Shiny
Global Fintech deals tallied 838 rounds worth $15.1 billion in the first six months of 2019 but the number VC backed Fintech deals dropped to the lowest number since Q4 of 2016, according to CBInsights quarterly Fintech report. While the number of deals may have declined the total funded in some regions moved higher. During 2018, there were some record-breaking funding rounds which skewed things a bit. Think Ant Financial’s record $14 billion deal in Q2 of 2018. Kind of hard to top that.
So what’s going on?
Fintech funding topped $8.3 billion during Q2, aided by a good number of $100 million “mega-rounds.” In fact, there were 25 of them worth, in total, $5 billion.
Quarter over quarter, Fintech deals in dropped 23%. Perhaps the most discouraging data point was the fact that early-stage deal share fell to 55%, a five-quarter low. You need early-stage rounds to keep later stage rounds going.
The report states that every region saw a deal decline during the quarter. India topped China for the first time, edging out middle earth in the number of deals but China still raised more money ($375 million vs. $350 million). US Fintech deals “cooled” but funding could still top 2018’s high water mark, predicts the report. $5.1 billion for 143 deals were reported in the US during Q2.
LATAM may claim title as the fastest-growing region with 23 deals in the quarter raising $481 million.
Asia booked 82 deals worth $1.1 billion as the market matured – nearing “historical lows.”
Europe, on the other hand, is on track to hit new highs for both deals and funding. During the first 6 months, 217 deals raised $3.3 billion. Europe’s Q2 even topped Asia. The UK remains the Fintech funding darling. The Brits booked $892 million for 33 deals during the quarter easily topping the same quarter year prior. Mega rounds helped, like Transferwise and Monzo.
Another positive note is digital banking which appears to be the new-shiny as aspiring banking platforms raised $649 million across 17 deals during the quarter. Q3 is on track to raise over $1 billion. Year to date funding for digital banks has already topped 2018’s banner year of $2.3 billion, according to CBInsights.
The digital-only challenger bank phenomenon is being fueled by the disaggregation of services. While we need banking services, we really do not need banks.
More and more Fintechs, as well as big techs, are offering a cornucopia of financial services. Some Fintechs are calling themselves a bank (or neo-bank) while others are “stealth banks” avoiding the term but providing the same services. And where do you draw the line? Depends on who you ask and where you are standing – at that time.
Wealth tech is growing too. The report notes that 35 deals raised $421 million – a five-quarter low – but still, sophisticated financial services are finally making it out to the masses.
The Unicorn Herd Grows
Fintech Unicorns now number 48 as Q2 saw 7 new Unicorns added to the herd. These include Marqeta, Bill.com, Cara, Lemonade, Checkout.com, Ivalua, and Liquid.
The CBInsights report is always worth reviewing providing a solid overview of the global Fintech investment sector. You may download the report here after handing over your email address.