Second quarter sees worst FinTech funding figures since 2018

FinTech funding continued to slide downward in the last few months, resulting in the worst second quarter figures since 2018, with $6.34 billion raised.

This is according to the latest analysis by Forrester, which showed that most of the money went toward digital banks, lenders and payment providers, continuing the trend of venture capital firms pouring money into well-established sectors.

Investors are moving money away from seed and early-stages toward late stages which are considered safer bets, with more than half of FinTech funding going to later stage financing, according to the report.

Investors are also mostly betting on FinTechs that improve existing processes, rather than innovating in new areas.

Globally, the biggest funding round during the second quarter was a $649 million round for Judo Bank, followed by the $600 million Series G for Stripe, and another Series G worth $300 million for Nubank.

With COVID-19 continuing to have a significant economic impact, Forrester gave some predictions for the rest of the year, including a suggestion that many - but not all - firms that compete directly with banks will be in jeopardy.

The report also stated that ‘tech titans’ and other large non-banks will make more moves into FinTech, while governments and quasi-government entities will play a growing role in FinTech funding.

Principal analyst Peter Wannemacher commented that the big takeaway is that the pandemic and efforts to contain it have sapped investors' enthusiasm for FinTech - but while this slowdown won't end immediately, it will end.

"The story here is definitely not the end of FinTech funding, it's that FinTech has gone mainstream and is now entering a chaotic period where M&A action and uncertainty will reign.

“It's increasingly clear that most funding is going to startups and growing firms that focus on existing, well-trodden areas and processes within financial services, and it is no longer just VC firms which are funding FinTechs - many incumbent financial providers and government entities are getting involved.

“When I say chaotic, I mean that the level of M&A activity will increase, and will be hard-to-predict," he continued, adding: "There will be young FinTech firms swallowing their peers, big banks gobbling up exciting-but-untested startups, and more.”

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