Twenty-five US$100 million “mega-rounds” helped VC funding for the fintech sector reach US$8.3 billion in Q2.
Globally, the number of venture capital (VC)-backed fintech deals declined 22 percent from Q1 to Q2 of this year, reaching a 10 quarter low, a new CB Insights report indicates.
Year-over-year, VC-backed financing dipped 23 percent in Q2, while early stage investment rounds dropped 55 percent over the last quarter.
Despite this downward trend, there were a total of 25 US$100 million “mega-rounds” during the quarter. These large financings helped VC funding for the fintech sector reach US$8.3 billion, its highest quarterly amount since Q2 2018.
With funding surging during the quarter, seven new unicorns emerged: Marqeta, Carta, Bill.com, Checkout.com, Lemonade, Ivalua and Liquid. This trend stemmed in part from fintech companies opting for private financings over public listings, CB Insights explains.
For example, Carta is an equity management company that is cross pollinating public and private markets. The company manages US$575 billion in equity and its mission is to broaden the number of individuals involved in equity ownership. In May, it was valued at US$1.7 billion.
Lemonade is a company that is disrupting the insurance sector through deploying artificial intelligence applications and, in turn, returning claims as fast as 3 seconds. Forbes reported that the company generated US$57 million in revenue from insurance premiums in 2018, saying that its primary demographic is individuals under 35 years old. In April, the company had a valuation of US$2 billion and held a US$300 million investment round.
Overall, the global scale of fintech growth is particularly noteworthy, Lindsay Davis, senior intelligence analyst at CB Insights, told the Investing News Network.
“There are now fintechs in markets that a year ago there weren’t,” Davis said. “NuBank being a great example in Latin America. (It is) now the fastest growing of the challenger banks, and (it) just reached a US$10 billion valuation.”
Challenger banks do not offer physical banking locations. Instead, their services are offered digitally.
NuBank is a mobile bank based in Brazil that got its original footing by issuing a credit card through a partnership with MasterCard (NYSE:MA). Through harnessing this partnership, NuBank eventually received a banking license. In June, it announced that 1.5 million savings accounts were opened in six months as part of its beta testing for these new digital accounts.
“The largest challenger banks are in Latin America. That is because of the favorable regulatory environment and technology infrastructure and the ability to get these products and services more easily into the hands of consumers that have largely been unaddressed,” Davis said.
During the second quarter, fintech funding in Latin America resulted in 23 deals valued at US$481 million, making it one of the fastest-growing regions for fintech. NuBank is already leading the way into the next quarter, receiving US$400 million in financing in July.
CB Insights’ report notes that digital challenger banks are the fastest-growing fintech subsector. Credit Karma, Coinbase, NuBank and Toss all have over 10 million accounts each.
In addition, fintech financing in India culminated in US$350 million in financing. EarlySalary, a loan startup based in India, for example, received US$1.1 million in funding in May. Policy Bazaar, a behemoth insurance aggregator in India, received over US$152 million in funding during the second quarter.
CB Insights’ report claims fintech funding in China reached US$375 million, narrowly surpassing India.
When it comes to Canada, the Fintech Growth Syndicate recently highlighted how Revolut, an explosive UK challenger bank, sees a growth opportunity in the country.
“Canada has always been a very attractive market for Revolut,” Revolut states. “As a country constantly at the forefront of innovation, the clunky and unresponsive products from the big banks showed a clear opportunity in an otherwise technology-forward market.”
As traditional banks are often slow to innovate and meet the demands of their client base, Canada’s relatively unsaturated banking market compared to its southern neighbor is a niche market for international challenger banks, the Fintech Growth Syndicate explains.
Even as the fintech sector matures, the future of the global fintech market continues to have positive growth projections as a whole.
When it comes to global challenger banks, Woody Marshall, general partner at Silicon Valley-based TCV, told the Financial Times that he expects that the company will continue to rise in market share over the next five years, especially in countries with more favorable regulatory environments.
“Whether it’s a challenger bank or new entrant, that will be one of the top three or five financial institutions in many of those markets,” said Marshall.
To that end, the Reserve Bank of India anticipates that online payments will nearly triple in the next three years, with users to increase from 100 million to 300 million.
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Securities Disclosure: I, Dorothy Neufeld, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.