As published on fintechmagazine.com, Tuesday 12 May, 2020.
The global coronavirus pandemic has destabilised private capital markets and led to a drop in fintech funding, according to CB Insights.
In its latest State of Fintech Q1 ‘20 report, CB Insights examines the landscape for fintechs and the financial services industry during the first quarter of this year.
It finds that this quarter was one of the worst for VC-backed fintech in two years as the economic impact of COVID-19 has dampened investor appetite for fintech.
For example, VC-backed fintech activity dropped to $6.1bn across 404 deals - this is the lowest level of deals since the first quarter of 2016 and the worst for finding since the first quarter of 2017.
This change has been as a result of investors - looking for security in the current climate - reneging on early-stage investments so that they can instead focus on strengthening existing portfolios.
CB Insights also recognises a notable trend of fintechs, insurtechs and financial institutions taking steps to mitigate the long-term impacts of coronavirus.
In these areas, it explains: “From insurtech and lending to payments and infrastructure, fintech and big tech players across every vertical are accelerating product development to prepare for the downstream impacts of the coronavirus and a recession.”
Regionally, there was a general decline in fintech deals quarter over quarter, with the exception of the African fintech sector.
In particular, it is noted, Asian funding dropped by 69% as a result of China facing the first serious outbreak of coronavirus.
Funding mega-rounds stalled, with zero reported outside of the US or Europe (nine and four respectively). This represented the lowest deal count since Q2 2018.
The report finds a particularly slow environment for fintech unicorn births during the first quarter of this year. Only three came to fruition: HighRadius, Pine Labs and Flywire.
There are currently 67 fintech unicorns globally, valued in aggregate at $252.6bn.
The same period at the start of this year saw a series of merger and acquisition exits in the fintech sector. Examples include Visa’s $5.3bn acquisition of Plaid and Intuit’s $7.1bn acquisition of Credit Karma.
More generally, CB Insights finds some liquidity in fintech M&As. For example, aside from those noted above, it also points to SoFi’s acquisition of Galileo for $1.2bn, LendingClub acquiring Radius bank for $185mn and Morgan Stanley acquiring E-Trade for $13bn.
Aside from fintechs, the report considers the landscape for other financial institutions. In this instance, it finds the use of automated technologies such as machine learning, robotic process automation and more being adopted in order to increase efficiency and reduce overall costs.
Accordingly, digital innovation is high on the agenda for a large proportion of organisations. Mentions of the phrase “reached new heights amid the coronavirus pandemic”, according to CB Insights.
This has proved beneficial for automation startup businesses such as MANTL, Certn and Parallel.