Fintech funding rebounds in Q2 but deal numbers continue to fall

Fintech funding in the second quarter of 2020 rebounded from Q1, but the number of fintech deals is continuing to fall.

According to CB Insights, fintech funding increased 17% quarter-over-quarter (QoQ) between April and the end of June. Funding stood at $9.29 billion, up from $7.947 billion in Q1 – marking an uplift following two straight quarters of decline.

But VC-backed fintech deals dived from 452 in Q1 to 397 in Q2. This suggests the funding rebound was largely made up of established fintechs’ mega-deals.

Just one fintech unicorn came out of Q2 2020

Crunching the numbers

Monthly deal activity was at its lowest in April, hitting 127 deals. This number picked up by June, which saw 141 deals.

Deal activity has been on a steady decline since the last quarter of 2019. This prompts the report to speculate “other headwinds in addition to COVID-19″ are to blame.

CB Insights data

Looking closer at the deal numbers, funding rounds for banking and real estate fintechs were specifically on the decline. Real estate deals were down more than $1 billion this Q2 since Q2 2019.

Conversely, wealth management and small and medium-sized business (SMB) funding deals were both on the rise.

Measuring deal sizes, it’s not much of a surprise that seed and angel deals were hit with the steepest QoQ decline over the last year.

Just one fintech unicorn came out of Q2 2020 – US challenger bank Upgrade. Those fintechs already holding unicorn crowns seem to have driven a large part of the fintech funding rebounds this quarter.

Fintech mega-rounds – those above $100 million – hit a new quarterly high of 28. Among them was trading app Robinhood which landed $280 million, Latin American challenger bank Nubank which landed $300 million, and the US challenger bank Varo which landed $241 million.

Fintech which did well

Fintechs offering integration-based services

Among those fintechs which did well this Q2, start-ups focusing their offerings around embedded and integrated services came out on top.

Payments fintechs Airwallex and Checkout.com raised a collective $310 million, whilst accounting fintech Silverfin landed a $30 million Series B.

Shopify also unveiled its banking offering for merchants

Checkout conversion solutions Tabby, Chargeback and Lolli also raised a combined $16 million in Series A and seed rounds.

Non-financial companies like Shopify, offering financial product integrations, set the tone for success in Q1.

In the first quarter of this year, Shopify’s merchant solutions revenues made up 60% of its revenues. This was driven primarily by its payment processing fees.

Retail investment services

Competition in the retail management space led to a pattern of consolidation in Q2.

Empower, the second-largest US retirement services provider, acquired Personal Capital for $1 billion. Goldman Sachs also acquired Folio, an RIA custodian platform, for $500 million.

Two other undisclosed deals happened last quarter in this space. These were Charles Schwab’s acquisition of Motif’s tech and IP, and Franklin Templeton’s acquisition of AdvisorEngine, a software and consulting company.

Start-ups automating SMBs’ back offices

The SMB segment of fintech – one which has traditionally gone underserved by incumbents – offers start-ups huge potential for niche revenue streams.

HR solution Factorial, accounting apps Zeitgold and Anfix, as well as financial data management platform Pennylane, raised a collective $54.2 million in Q2.

A Censuswide survey this year suggested 92% of UK SMBs reported are treated unfairly by incumbent banks

Expense management start-ups Canopy, Digits and Corcentric also did well this last quarter, racking up $104 million in collective funding.

Fintechs releasing trapped liquidity

The report highlights the growing competition amongst fintechs trying to help homeowners free up trapped liquidity.

Noah, EasyKnock, Haus and Landed secured a collective $196.3 million last quarter.

This trend has continued into Q3, with home-backed loan provider Selina Finance landing £42 million at the end of last month.

Mature fintechs turn to IPOs

A flurry of initial public offerings (IPOs) happened in Q2 too. Lemonade, a digital renter and homeowner insurance company, listed alongside nCino, a cloud core banking provider.

Other listings included SelectQuote, an online insurance matching platform, Shift4Payments – an online point of sale (PoS) provider and Fusion Acquisition, a fintech-focused blank check firm Fusion Acquisition.

CB Insights’ report does not cover companies funded solely by angels, private equity firms, or any debt, secondary, or line of credit transactions.

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