At the confluence of financial services and technology, there are FinTechs—bridging gaps across the financial services ecosystem. The Coronavirus pandemic has accelerated the world’s migration to a digital economy and is giving new opportunities for FinTechs. Although the pandemic has led to increased global uncertainty, venture capital investments have been strong in many regions worldwide. So far, in 2020 (January to October), FinTechs have raised approximately $35.69 billion compared to the $37.07 billion raised in the same period in 2019.
A wave of activity moving across the Atlantic
After a pronounced pullback in investor activity during the early days of COVID-19, activity has now started to pick up. September 2020’s total funding amounted to $6.59 billion, surpassing 2019’s monthly number of $4.81 billion. From a geographical perspective, the Americas continue to be a hotbed of FinTech funding activity, having done deals worth $20.64 billion this year (January to October) compared to the $20.3 till October 2019. However, Asia, and more specifically, China, Singapore, Indonesia, and India, are increasingly witnessing a larger number of deals. The large underbanked population in these regions, along with rapid digitization, provides a fertile ground for the growth of FinTechs. Singapore’s Grab Financial raised $850 million in funding, which is the year's biggest funding deal. Meanwhile, the US-based payment processing platform Stripe secured the second-largest VC and FinTech deal, valued at $600 million.
Interestingly, Indian startups also witnessed a surge in funding even in the midst of a global slowdown in FinTech investments. In the first 10 months of 2020, India’s FinTech startups have raised almost $1.92 billion in funding, which increased from $1.78 million in 2019. India saw a total of 145 deals till October 2020. Some of the significant investments that contributed to India’s growth in this space included Navi Technologies ($394 million), DMI Finance ($123 million), and Razorpay ($100 million).
Neobanks have become the most funded sector
Segment-wise, the most interesting shift was observed in the growing popularity of Neobanks. Till October 2019, Neobanks were the fourth most popular FinTech segment and attracted $3.61 billion in funding. However, this year, so far, Neobanks have been ruling the roost and have shot to the top of the list with $4.95 billion in total funding. In 2020 to date, the top funding deals were Klarna ($650 million), Revolut ($500 million), and Chime ($485 million). Perpetuating their growth are millennials, MSMEs, participants of the gig economy, and, more importantly, the increasing number of people who are adopting a digital-first attitude. The successful models of Neobanks, coupled with their potential to garner significant market share in the future, have inevitably piqued the interest of investors, venture capitalists, and corporates. The Lending, Payments, InsurTech, and WealthTech segments continue to attract funding and have so far this year raised approximately $17.1 billion, albeit at a slower clip compared to the previous year. Even if funding in these segments were to accelerate in November and December, it is unlikely to cross the $24.39 billion raised in 2019. Furthermore, funding activity was also seen in segments like Remittances, Crowdfunding, and Blockchain.
FinTech startups truly found their footing in the aftermath of the global financial crisis at a time when the financial services industry had lost face with the consumers, and innovative technology was finally gaining some momentum. Slowly, FinTechs moved out of niche use cases and began to operate at scale. From operating in silos and catering to only specific segments and demographics, they are now present across the financial services value chain. Mirroring the growth in other sectors that have optimally leveraged technology, FinTechs are now rebuilding their offerings to reimagine the financial stack. Undoubtedly, this will not only lead to the creation of new products and services but also attract unprecedented investor interest.
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