day, ber 1941
What The State of Fintech Covers
Summary of Findings
Mega-rounds drove fintech funding in Q3'20
The 25 mega-rounds ($100M+ deals) in the quarter accounted for 60% of total fintech funding - the highest percentage share since Q2'18 (68%), when Ant Financial raised a $14B round. Funding represented by mega-rounds increased 24% quarter-over-quarter (QoQ) to $6.4B, while non-mega-round funding declined 16%.
Deal activity declined for the fourth consecutive quarter
Deal activity declined to 451 deals, down 24% year-over-year (YoY). However, angel/seed rounds were a bright spot, with deals increasing 20% QoQ and reversing a 3- quarter contraction. The sustained multi-quarter decline in deal activity mirrors investor consolidation into mature, later-stage fintechs such as Klarna, Affirm, and Bright Health. Since the decline in deal activity began in Q4'19, the average deal size has increased from $18.8M to $23.6M.
Funding and deal activity both grew in Europe and South America
Europe and South America were the only regions to show QoQ increases in both funding and deal activity. North America, Europe, and South America all saw increased funding QoQ, while funding to Asia- and Australia-based companies fell 12% and 84%, respectively. Deal activity in South America, Africa, and Europe grew in Q3'20. Notably, Africa and South America are the only regions with continuous quarterly deals growth in 2020 year-to-date (YTD).
FAMGA activity in fintech is taking many forms
The FAMGA companies - Facebook, Apple, Microsoft, Google, and Amazon - were active in fintech this quarter with patent approvals, partnerships, and investment activity. Most notable was Apple's acquisition of Canada-based mobile payments company Mobeewave for $100M. In addition, Facebook, Microsoft, and Amazon all received approval for payments-related patents.
Mortgage companies and brokerages were popular acquisition targets
Mortgage analytics firm Black Knight acquired Optimal Blue for $1.8B, ICE acquired EllieMae for $11B, and United Wholesale Mortgage is set to go public in a $16B SPAC deal. In the brokerage space, NuBank acquired Easynvest, while Neon Pagamentos bought Magliano Invest.
Sector Investment Trends
Payments: Payments companies raised almost $4B in Q3'20 across 109 deals, a QoQ increase of 4% and 5%, respectively. Notably, mega-rounds accounted for 65% of total funding to the space in the quarter.
Banking: Funding to banking companies grew for the third consecutive quarter to $2.4B, up 8% QoQ, while deals ticked up 5% to 58.
Alternative lending: From Q1'20 to Q3'20, alternative lending deal activity increased by 42%. Quarterly funding reached $1.8B in Q3'20, though this was still below the high mark over the past 5 quarters ($2.7B in Q3'19).
Wealth management: Wealth tech companies drew $1.5B in funding across 62 deals in Q3'20, a more than 5x increase in quarterly funding compared to the space's recent low in Q4'19.
Insurance: Insurtech funding rose 52% QoQ while deals ticked up 6%. Five mega-rounds drove over $1.2B of funding in the quarter, representing 47% of total funding.
Capital markets: Funding dipped slightly this quarter to $2.2B while deal activity grew 53% to 84. The average deal size fell 36%, reflecting greater activity in the early- to mid-stage range.
SMB: SMB funding has been uneven over the past 5 quarters and fell in Q3'20 by 21%. However, deal volume grew for the third consecutive quarter to reach 71.
Real estate: Deals to real estate tech companies fell 8% to 97, a 5-quarter low. Funding also dropped QoQ, down 25% to $951M.
Embedded Fintech Momentum Continues in Q3'20
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