Hey Fintech Friends,
A new quarter can only mean one thing at This Week in Fintech– new Signals Quarterly Roundup 😎.
For new readers, Signals is the subscriber-only 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:
Which concepts are getting funded?
Where are exits, M&A, and SPACs concentrated?
Which firms are raising debt and venture funds for fintech?
Which products were launched over the last quarter?
If you haven’t already, subscribe to future editions here!
For starters
Fintechs raised a total of $5.9 billion in Q3, a nearly $13 billion decrease quarter-over-quarter. In line with the broader tech sector, a number of fintech companies revised down valuations, called off acquisitions, postponed listings, or raised extensions of prior rounds (averting the prospect of a down round).
See the full Q3 ‘22 data here (for paid subscribers only).
Lower valuations aren’t necessarily bad signal– on an aggregate level, it indicates that the market is getting more meticulous in evaluating companies. There’s still a lot of green field for startups to tackle, and as we’ll see, investors are actively raising venture funds to back them.
If you’re looking to join such a venture, quick call-out that This Week in Fintech has a Job Board and that there’s a #hiring channel in TWIF’s Slack community!
Let’s dive into fintech activity in Q3.
Which concepts are getting funded? 🤑
Funding continued to accumulate towards Seed and Series A rounds as macro uncertainty pushed investors away from later-stage deals.
Areas that saw the highest activity were:
Business financial management, led by Ageras’ €35 million growth capital raise, Fuell’s €1.5 million Series A, and Kippa’s $8.4 million Seed.
A few concepts received notable funding, including:
Early & earned wage access, with funding to EarlySalary, ZayZoon, Rosaly, Nano, and B9 furthering workers’ ability to advance their payroll.
Verticalized payments, with funding to Casavo, ClosingLock, Mudafy, and Fello disrupting legacy payment experiences in real estate, as with Resolve, Canvas, Nitra, and ClaimLogiq in healthcare; PayIt, Forage in government payments; Cheq, MenuSifu in restaurants; Zebedee in gaming; and Highline in billpay.
Private markets investing, with funding to Bunch, Edda, Allocations, Pulley, Ledgy, Opto, Asset Class, and QuotaBook enabling better equity management for investors, companies, and employees.
Where are exits, M&A, and SPACs concentrated? 📈
Lower valuations invited larger companies to go on buying sprees, which drove acquisitions to spike by 153% (🤯) in Q3 over the prior quarter.
In business financial management, competition to become a full-service financial operating system is heating up (more on this next week)– with Float, Bottomline, and FMS Solutions respectively acquiring Accounteer, Nexus Systems, and Retail Financial Services to broaden their finance suites.
Private markets investment platforms consolidated across the pond. US-based Republic acquiring the UK’s Seedrs, and US-based Carta snapped up the UK’s Vauban and Capdesk.
Stay on the look-out for consolidation in crypto investment; FTX is reportedly raising capital to acquire in the retail crypto space, after extending a $400 million credit line to BlockFi in a deal that gives FTX the option to buy BlockFi if certain targets are met.
Which firms are raising debt and venture funds for fintech? 💰
A number of early-stage funds were launched, including:
Portage Ventures, the venture arm of Canadian investment firm Sagard, closed $616 million for its third fund targeting fintechs.
Financial Venture Studio locked in $40 million for its second fund targeting early-stage fintechs in the US.
Cambrian Ventures’ inaugural $20 million fund focused on angel, seed, and pre-seed stage fintechs.
Singapore’s Arbor Ventures is reported to have raised $193 million towards its third fund, with plans to raise as much as $300 million to fund early-stage fintechs.
In growth-stage venture,
Motive Partners closed a whopping $2.54 billion for its second flagship fund, which will focus on growth and buyout investments in the US and Europe.
Neva Sgr, the venture arm of Italian bank Intesa Sanpaolo, unveiled its €250 million Neva First Fund geared towards startups entering new markets.
Not to be outdone, Web3 investors also filled their war chests:
Northzone raised €1 billion to invest in fintechs, with Web3 as a “core sector”.
Global Alternative Investment Management raised $1.9 million for its second fund targeting blockchain, fintech, and AI.
Christie’slaunched its own venture fund and put “several million dollars” towards technologies that could impact the art market, including Web3 products.
Which products were launched over the last quarter? 🚀
Just as JP Morgan Chase’s Global Head of Payments declared that client demand for crypto payments has dwindled to “a niche use case, at least for now”, fintechs launched a slew of new ways to pay for purchases using crypto. Bitso, NearPay, NBX, hi, and Binance (in Argentina) unveiled new crypto-funded payment cards; Qori and Bitso (Argentina) launched crypto payments via QR code.
In the US, hedging for interest rate hikes just got a lot easier: Yotta rolled out a feature enabling users to buy I-Bonds (inflation-adjusted government bonds), and Jiko released treasury holdings in spendable T-bills (short-term government debt) for businesses following news that high-yield treasury management platform, Meow, closed a Series A.
Variable Recurring Payments (VRP) were added to the UK’s open banking mandate, enabling platforms like GoCardless, Plaid*, and Yapily to roll out streamlined “sweeping”– payments between two accounts owned by the same user. This lays the groundwork for commercial VRPs, or payments pushed from a user’s account to a business for e.g. billpay, subscriptions.
Mastercard launched its WhereToStay platform for Ukrainian refugees, and backed the creation of an app for people with dementia, Sibstar.
* My former employer 👋🏽
Q3’22 Look-back
Lots of macroeconomic uncertainty so far into 2022: The S&P 500 is down 21%, global inflation is on track to reach 7%-8% by year end, central banks are hiking interest at unprecedented rates, and crypto... well, crypto's not doing great. Despite the turbulence, Q3 also put a spotlight on how certain fintech products will need to evolve in order to weather a potential downturn.
Interest rate hikes are pressure tested the ability of consumer financing platforms to offer well-priced credit. While institutions like Bank of America are enjoying repayment rates at or near record highs, fintechs who’d designed their underwriting models in a low-interest world are struggling to keep pace: Goldman Sachs revealed that Apple Card saw the worst credit losses of all major US card issuers at 2.93%, Nubank reported credit losses trending towards this rate, and Klarna booked losses of 3.9%.
Nubank's non-performing loan ratio has been trending upward in 2022. Source: Nubank Q2 Financial Results
BNPL solutions have been increasingly coming under fire from regulators amid concerns that users– who tend to be lower-income and less financially literate– are racking up unsustainable debt. In response, a number of personal finance solutions are emerging to help consumers manage scattered liabilities. Cushion, an app originally focused on helping consumers fight bank fees, recently released a "command center" for BNPL loans. Payroll-based advances are also gaining ground as a non-recourse alternative to consumer debt; see recently-backed companies in the "Which concepts are getting funded?" section.
In line with dampening retail trading volumes, there was an uptick in investment platforms launching solutions for investing in private assets like real estate and startup equity. Privately-owned assets tend to be less liquid and carry longer-term horizons than public stocks, making them an appealing bet in times of volatility.
A particularly interesting trend has been the market's response to changes in businesses' financial product needs. A new economic environment calls for new products to help businesses manage their finances and fund operations, converging concepts on levels we haven’t seen until recently. Next week's Signals will dive deeper on this trend– stay tuned 🙂
