Global Fintech Funding Continues to Decline; Falling 38% QoQ

Fintech funding continued to slide in Q3 2022, falling 38% quarter-over-quarter (QoQ) to US$12.9 billion. The total makes Q3 2022 the sector’s weakest quarter since Q4 2020 and brings the total raised by fintech companies so far this year to $63.5 billion, down 64% year-over-year (YoY), data from CB Insights’ latest State of Fintech report shows.

The downward trend observed over the past year comes amid global uncertainty and rising inflation concerns that have prompted venture capital firms to invest more cautiously and favor sustainable businesses.

Global fintech funding by quarter, Source: State of Fintech Q3 2022, CB Insights

According to the report, Q3 2022 was characterized by fewer mega rounds, smaller deal sizes, falling new unicorn births and declining mergers and acquisitions (M&A) activity.

Only 19 mega rounds worth $100 million and above were registered in Q3 2022, the fewest since Q2 2018. These rounds accounted for just 34% of total funding ($4.4 billion), down 32 percentage points from the 2021 average of 66%.

Quarterly fintech mega-round funding and deals, Source: State of Fintech Q3 2022, CB Insights

Average deal size also fell, falling 38% from 2021 to $20 million. And fintech unicorn births fell below double digits for the first time since 2020, with just six new unicorns in Q3 2022: 21.co, a cryptocurrency startup from the US; OneCard, a mobile-first credit card offering in India; Stori, another credit card provider, but from Mexico; Dana, an Indonesian digital wallet, Paystand, a business-to-business (B2B) payment platform from the US, and Zebec, a crypto startup from the US.

M&A, meanwhile, continued to be the preferred exit type, recording 155 deals in Q3 2022. However, the figure represents a 14% QoQ decline and an eight-quarter low. Only four mergers into special purpose acquisition companies (SPACs) were recorded for the quarter, surpassing the number of initial public offerings (IPOs) of two.

Fintech exit trends, Source: State of Fintech Q3 2022, CB Insights

Regional and sectoral trends

Looking at regional trends, data shows the slowdown took a toll on the US market, with fintech funding plunging 43% QoQ to $5.1 billion, hitting its lowest point since Q1 2020.

Although the US still led the world in regional deal share (39%) and total funding (US$5.1 billion), it fell behind Asia and Europe in mega-round funding, registering just four deals totaling US$900 million, compared to US$1, 8. billion and nine deals for Asia and $1.7 billion and six deals for Europe. This is the first time Asia takes the first position in mega-round funding.

Asia and Europe also surpassed the US share of late-stage deals, with Europe pulling in 32% of deals in Q3 2022 and Asia 33%, while the US brought in 24%.

Mega-round funding in Q3 2022 by region, Source: State of Fintech Q3 2022, CB Insights

Across geographies, Australia was the only region to see a QoQ increase in fintech funding and deal numbers, growing at a remarkable 40% rate in funding totals (US$144 million) and with a 42% increase in deal numbers (17 rounds ).

Looking at fintech segments, all categories recorded a drop in funding, with payments falling 27%, banking 37% and lending 16%. Wealthtech took the biggest hit, with global funding plunging 69% to $1.1 billion, followed by capital markets, which saw funding fall 50% to $400 million.

Insurtech recorded the smallest QoQ decline across all fintech segments, ticking down 4% from US$2.4 billion to US$2.3 billion. Although insurtech funding activity this year is significantly reduced compared to 2021, insurtech has remained relatively flat through 2022, unlike other sectors.

Quarterly insurtech funding, Source: State of Fintech Q3 2022, CB Insights

In Q3 2022, payments dominated the global fintech funding landscape, raising a total of US$3.9 billion across 178 deals. Asia secured almost half of this sum, collecting $1.6 billion across 49 deals. Notable rounds included Dana’s US$555 million Series A, Toss’ US$371 million Series G, and OneCard’s US$100 million Series D.

Insurtech was the second largest fintech segment in Q3 2022, with the US leading the world in terms of total funding and number of deals. The largest equity deals in Q3 2022 included Wefox’s US$400 million Series D, Pie Insurance’s US$315 million Series D, and Coalition’s US$250 million Series F.

After insurtech, digital lending took third place, securing a total of USD 2.1 billion through 131 deals. Europe took the lion’s share, raising a total of USD 900 million through 23 deals. Klarna’s private equity round of USD 800 million made up most of the sum.

Global fintech funding by segment, Source: State of Fintech Q3 2022, CB Insights

Startup funding has retreated significantly this year due to a slowdown in public markets and economic concerns. VC investments for Q3 2022 totaled $74.5 billion, hitting a nine-quarter low. This represents a 34% QoQ drop and is the biggest quarterly decline in the past decade, data from CB Insights shows.

Featured Image Credit: Edited from Freepik