Signals Q2’24: Later-stage fintech rounds are SO back

Hey fintech friends,

After a slow start to the year, fintech funding is starting to pick up steam again. Certain concepts– including artificial intelligence, alternative investments, and x-border stablecoin payments– have also dominated headlines in recent months. It feels like the perfect time to dive into fintech activity in Q2!

For new readers, Signals is the premium subscriber edition of TWIF designed to get you away from the headlines and to explore the larger trendlines. Each quarter, we break down four key questions on fintech activity:

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Fintechs raised a total of $8.383 billion in Q2, up 56% from the prior quarter and up 70% Year-over-Year. The number of rounds raised was up 7% QoQ (⬆️18% YoY), and the average size of each raise grew 47% QoQ (⬆️47% YoY).

For the first time in over a year, total funding increased for Series A through later-stage rounds, which is consistent with an uptick in late-stage funding in the broader venture ecosystem. Much of the capital that fintechs amassed in Q2 came from mega-rounds (+$10M)– notably, Abound’s £800M debt+equity raise, Stripe’s $694M employee secondary (which vaulted Stripe to a $65B valuation) and AlphaSense’s $650M Series F.

Total investment in Pre-Seed and Seed-stage rounds was also fairly consistent quarter-over-quarter.

Areas that received the most funding were:

A few concepts received notable funding:

Heightened interest in AI technologies and alternative investments– in particular, in private credit assets– were big M&A drivers in Q2. 

Areas that saw the highest M&A activity were:

Borderless stablecoin transfers dominated payment headlines, with Stripe and Coinbase partnering to offer Stripe customers USDC pay-ins/pay-outs; Mastercard launching its borderless P2P crypto network, Mastercard Crypto Credential; PayPal debuting PYUSD on Solana, and Ripple announcing the launch of its own stablecoin, RLUSD.

Meanwhile, the Bank for International Settlements unveiled Project Rialto– a plan to test instant cross-border payment settlements between central banks using wholesale CBDCs – and Visa partnered with Allium to launch an Onchain Analytics Dashboard to help us make sense of it all:

Embedded BNPL is expanding further into digital wallets like Google Pay, which is partnering with Affirm and Zip to surface pay-later options at POS, and Apple Pay, which discontinued Pay Later in favor of a similar third-party BNPL integration with Affirm. Walmart also announced it would offer customers BNPL through its own fintech, One– potentially luring customers away from Walmart’s existing 3rd-party partnership with Affirm.

Fintechs released a slew of tools for payment fraud detection: Visa deployed Gen AI to combat enumeration attacks; Unit21 released machine learning-based ACH risk scoring; Commonwealth Bank of Australia announced the release of Truyu, a digital ID & fraud alert app; Forter announced upgrades to its identity intelligence suite; Evervault launched a security platform for businesses handling payments, and Plaid* released Layer, a KYC layer that dovetails with the bank linking experience.

Two major themes drove much of the fintech activity that took place in Q2:

One topic that’s generating parallel buzz among fintechs: The outlook for earned wage access solutions in the US. 

Specifically, earned wage access (EWA) providers may finally get guidance from US regulators on whether earned wage access products fall into the scope of federal lending regulation, or whether EWAs belong in a separate legal category altogether. This distinction could define the outlook of the $22.5 billion EWA industry– whose value is forecasted to grow to $26.74 billion in 2030– and will have major implications for those among the 60% of Americans living paycheck-to-paycheck who are most likely to use EWAs.

At the center of the debate is whether an EWA solution should be considered a “loan” or “credit” product. If so, EWA would be subject to federal regulation under the Truth in Lending Act & Reg Z, and would have to comply with state lending and usury laws– all of which EWA providers would prefer not to be subject to. 

The debate around whether EWAs should be regulated as loans begs the question… What is a loan?

Providers like EarnIn and Payactiv have been arguing that EWAs can’t be considered “lending” or “credit” as these products simply give workers access to wages they’ve already earned, but just haven’t received yet. In financial terms, EWAs can simply be seen as the purchase of a worker’s future cash flow– a process that’s more akin to receivables financing than a “loan”. Taking it a step further, EWA providers argue that advanced wages reduce consumers’ reliance on potentially harmful credit products, like payday loans and long-term credit card debt. Moreover, EWAs demonstrably improve worker satisfaction and boost employee retention for the employers they serve.

Several states, including South Carolina, Kansas, Missouri, Nevada, and Wisconsin, have carved out rules that require EWA providers to register for licenses, but exempt them from state lending regulations. Hawaii and Kentucky, however, are considering rules that would define EWAs as loans and potentially ban certain EWA offerings under state usury laws. These states argue that fees workers might pay to access funds instantly (or in the form of “tips” to the platform) bring the average cost of an EWA repaid in 7 to 14 days to 367% APR, on par with that of a payday loan.

EWA providers counter that earned wage access should be carved out from lending laws because metrics like APR don’t make sense to apply to such short-term advances. The UK’s “Code of Practice” follows this argument in laying out separate rules for EWA providers, and a bill making its way through Congress (the “Earned Wage Access Consumer Protection Act”) similarly looks to further consumer protections while exempting EWAs from established lending laws. If enacted, this bill could be a major boon for the EWA industry.

* My former employer.