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FinTech Q2 2020: The highs and lows of the market

I think that the fact that COVID-19 has ravaged economies and industrial sectors does not need to be mentioned again, however the impact on FinTech is now starting to be quantified.

In its Q1 State Of FinTech report CB Insights features data-driven insights from its platform from which they take a look at global FinTech investment trends in key financial verticals, partnership activity, public company earnings call transcripts, and overall deal funding across the world.

Across the board, FinTech funding activity stalled in Q1’20 as the coronavirus outbreak forced investors to pull back investments.

  1. In Q1 2020, VC-backed FinTech funding dropped to $6.1 billion across 404 deals. The Covid-19 outbreak had a significant impact on FinTech financing resulting in the worst Q1 since 2016 for deals and the worst Q1 for funding since 2017.
  2. With forecasts of a recession, investors pulled back on early-stage bets to focus on fortifying portfolios. Q1 2020 early-stage (seed & Series A) startups saw 228 deals, a 13-quarter low, and $1.1 billion in funding, a 9-quarter low.
  3. FinTech funding in Asia, North America, Australia, South America, and Africa dropped quarter-over-quarter. In Q1 2020, Asia saw a 69% drop in funding (to $883 million) and a 23% drop in deals quarter-over-quarter. Europe was the only major region to see an increase in funding, driven by 4 mega-rounds ($100 million +) including Revolut’s $500 million Series D and Qonto’s $115 million Series C.
  4. Investors start to see some liquidity amid a FinTech M&A spree in 2020. In addition to the Plaid and Credit Karma acquisitions, unicorn SoFi acquired Galileo for $1.2 billion and exited unicorn LendingClub acquired Radius Bank for $185 million, pending close.

FinTech investment 2020

However, in a ray of light for the industry, revenues from FinTech are expected to increase from $150 billion in 2018 to $500 billion by 2030 at an average annual growth rate that’s about 3x faster than the larger financial industry’s projected revenue growth, according to a recent report from UBS.

The report notes that the booming FinTech sector is expecting consistent double-digit earnings growth (per year) for the next eight years. According to UBS’ analysis, FinTech is well-positioned to be among the world’s fastest-growing sectors, internationally.

Key growth areas include digital payments, online lending, insurance technology (Insurtech), Wealthtech, and capital markets technology.

The report reveals that blockchain or distributed ledger technology (DLT) and artificial intelligence (AI) will bring opportunities and will also challenge existing financial service providers and traditional business models.

UBS’ report projected that blockchain tech or DLT would generate $300-$400 billion in yearly economic value, internationally, by 2027. The distributed ledger will be widely adopted across six main sectors, including financial services, manufacturing, healthcare, public services, utilities, and the sharing economy, the report predicts.

The bank said that blockchain will help the financial industry in processes involving disintermediation and automation. This will lead to greater efficiency and cost-savings for companies across the globe.

Blockchains will enhance existing post-trade services, compliance processes, trade finance, foreign exchange (FX) transfers, insurance claims, and will enable greater financial inclusion by supporting digital currency transactions.

Artificial intelligence will significantly improve traditional business processes, the report claims. It noted that AI would help companies offer helpful virtual assistants, chatbots and develop sophisticated speech recognition software – which would work for everyday or typical customer interactions.

AI will also help automate wealth management advice (Robo-advisors) and enhance risk management and anti-money laundering (AML) checks and procedures.

AI also has the potential to improve the insurance industry by supporting better products and pricing, underwriting, target marketing, and sales, claims management, and data mining, the report stated.

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