Fintech Activities Remain Low According to the FT Partners Research

FT Partners Research has released its study on the development of global fintech transaction activity in the first quarter of 2023. This again includes a comprehensive analysis of private company financings, IPOs, and M&A transactions.

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Turbulence in the first quarter of 2023

While the effects of high inflation and rising interest rates are still being felt, turmoil in the banking sector added another element to the environment for fintech transactions in the first quarter of 2023. The troubles at Silicon Valley Bank and Signature Bank caused increased volatility across the banking sector in March and undoubtedly disrupted the tech and startup ecosystem as well.

While the overall banking environment appeared to stabilize relatively quickly, the longer-term impact of the collapse of these two banks on the fintech ecosystem is less clear.

Slight increase in fintech investments

Despite the turmoil and ongoing challenges in the market, private fintech company funding increased 53% to $17.7 billion in the first quarter of 2023 from $11.6 billion in the fourth quarter of 2022, breaking a streak of three consecutive quarters of declines. However, the overall level is significantly reduced compared to the record years before.

In addition, Stripe’s $6.5 billion Series I round – the second-largest fintech funding round ever – accounted for more than one-third of total funding in the quarter. Without this funding, there would have been a decline to report.

The number of funding rounds also increased in Q1 2023 (794 deals) compared to Q4 2022 (681 deals), but still remained below the high level of activity seen in 2021 and early 2022.

The increase in deal activity was primarily led by a steady stream of early-stage and smaller deals, with 46 percent of all funding rounds raising less than $5 million this quarter.

Peculiarities of fintech investments in the first quarter of 2023

Notably, very few B2C-focused fintech companies based in the US raised money in Q1. Most of the capital went to B2B and FinTech infrastructure- or back-office-focused companies in a variety of fintech sectors, while outside of North America, a few large direct-to-consumer companies announced significant capital raises.

Fintech M&A on the decline

With very few large deals, M&A volume reached only $9.2 billion in the first quarter, the lowest level since the second quarter of 2020 ($9.1 billion), when the world was hit by the Corona crisis.

Mergers and acquisitions in the fintech sector valued at more than $1 billion were scarce in the first quarter, with only two announced deals – the fewest since the second quarter of 2013.

While announced dollar volume declined significantly this quarter, the number of deals increased slightly to 299 compared to 257 in Q4 2022 but still remained below the quarterly average for 2021 and 2022 (342 deals).

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(Featured image by Jonas Leupe via Unsplash)

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