Neobanks and InsurTech Startups: The Rise of FinTech Funding
The world of finance and technology, commonly known as FinTech, has been experiencing significant growth in recent years. This growth is particularly evident in the rise of neobanks and InsurTech startups, which have been raising substantial amounts of money to fuel their expansion and innovation efforts. In the past week alone, 23 FinTech companies, including neobanks and InsurTech startups, successfully secured funding, highlighting the increasing investor interest in this sector.
The Current State of FinTech Funding
Decline in Deal Volume
The first half of 2023 witnessed a slowdown in venture capital investment in the FinTech industry. According to S&P Global, funding into global fintech companies plummeted by 49% year over year, amounting to $23 billion. This decline in funding was accompanied by a significant decrease in the number of funding rounds raised during the same period. Only 1,178 investments were made in the first half of 2023, marking a 64% drop compared to the previous year.
Investor Sentiment and Mega-Rounds
Investor sentiment in the FinTech sector has been dampened, with the slowest quarter on record over the past 2.5 years. The Silicon Valley Bank failure in March further contributed to the decline in investor risk appetite. Additionally, the number of mega-rounds, those exceeding $100 million, has been decreasing. In the second quarter of 2023, only nine mega-rounds were closed, compared to 55 in the same period in 2022.
Valuations Looking Up
Amidst the decline in deal volume and funding, there is a silver lining for the FinTech industry. PitchBook’s second-quarter valuation guide reveals that share prices for recently public fintech companies have been rebounding faster than the wider market. These companies experienced a 21.2% increase in share prices during the second quarter, outperforming the Nasdaq and S&P 500. The guide also highlights investors’ preference for profitability, with traditional IPOs outperforming SPACs.
Focus on Profitability and M&A Activity
Fintech companies are increasingly prioritizing profitability, leading to reductions in operating expenses and personnel. Neobanks, insurtechs, proptechs, and high-growth payments companies are all striving to achieve profitability. At the same time, well-funded incumbents are focusing on mergers and acquisitions (M&A). The recent flurry of M&A deals in the sector indicates that lower valuations are favorable for acquirers with adequate free cash flow.
Positive Turnaround and Investor Prudence
Despite the challenges, there are signs of a positive turnaround in the FinTech sector. The second half of the year is expected to show improvement, with investors remaining prudent and seeking companies on the path to profitability. The recent increase in M&A activity and the pursuit of profitable business models by neo-banks are encouraging indicators for the sector’s future.
Weekly News in Neobanks and InsurTech Startups
Pipe Co-Founders Move On
Pipe, once a prominent alternative financing startup, has seen all of its co-founders depart. The departure of the co-founders raises questions about the company’s future and its ability to deliver on its promising vision. The circumstances surrounding the co-founders’ exit and the company’s alleged misuse of capital remain unclear, leaving room for speculation about the reasons behind their departure.
Swale’s Revenue and Losses
French startup Swale, known for its payment card for employee benefits, shared its revenue metrics for 2022. The company generated €138 million ($153 million) in revenue, including the revenue from its merger with Bimpli. However, Swile’s losses also widened to €72 million ($80 million). This mixed performance highlights the challenges faced by FinTech startups in balancing revenue generation and profitability.
Totem: A Digital Bank for Indigenous People
Totem, a digital bank catering to Native American, Hawaiian, and Alaska Native communities, has launched its public app on the App Store. The app offers foundational and accessible financial products, including spend accounts with no monthly fees or minimum balances. It also provides early paycheck access for direct deposit customers. Totem stands out for its commitment to supporting indigenous communities and giving back to tribal partners through every purchase made with its card.
Notable Developments and Partnerships
JPMorgan’s Focus on Silicon Valley Startups
JPMorgan has made a strategic move by hiring a former Silicon Valley Bank executive to lend to startups in the region. This decision aligns with JPMorgan’s aim to capture opportunities in the thriving startup ecosystem and strengthen its position in the FinTech industry. The move also follows Brex’s recent hire of an SVB veteran, indicating a trend of established financial institutions tapping into the expertise of Silicon Valley professionals.
Checkout.com’s AI-Led ID Verification Solution
Checkout.com, a leading payments platform, has launched an AI-led ID verification solution. This solution enhances the security and fraud prevention capabilities of the platform. By leveraging artificial intelligence, Checkout.com aims to provide a seamless and secure user experience for its customers. The launch of this solution demonstrates the company’s commitment to staying ahead of evolving security threats in the FinTech space.
Ebanx and Nubank’s Payment Service Partnership
Brazilian FinTech company Ebanx has partnered with Nubank, a prominent neobank, to offer a payment service to customers. This partnership combines Ebanx’s expertise in cross-border payments with Nubank’s innovative banking solutions. The collaboration aims to provide customers with convenient and efficient payment options, further strengthening both companies’ positions in the Brazilian FinTech market.
Recent Fundraising and M&A Activities
QED Leads $7M Round for SaaS Financing Startup
QED, a prominent venture capital firm, has led a $7 million funding round into a startup that offers financing solutions to SaaS businesses across the US-South Asia corridor. This investment reflects QED’s confidence in the potential of the SaaS industry and its commitment to supporting innovative startups in this space. The funding will enable the startup to expand its operations and provide financing solutions to a broader customer base.
CapStack Raises $6M for Bank-to-Bank Marketplace
CapStack, a new startup led by a co-founder of Pipe, has raised $6 million in funding for its bank-to-bank marketplace. The marketplace aims to “de-riskify” portfolios by providing a platform for banks to trade assets. The successful funding round demonstrates investor confidence in CapStack’s innovative approach to facilitating efficient asset trading in the banking sector.
Silo Raises $32M for Financial Management Solution
Silo, a company specializing in financial management for food supply chain companies, has secured $32 million in funding. The funding will support Silo’s efforts to help food supply chain companies manage their finances more effectively. With this investment, Silo aims to expand its customer base and further develop its innovative financial management solution.
Conclusion
The rise of neobanks and InsurTech startups, as evidenced by the recent funding activities, highlights the growing importance of FinTech in the global financial landscape. Despite the challenges faced by the industry, such as declining deal volumes, there are positive signs of a turnaround. Investors are increasingly focusing on profitability, and companies are pursuing innovative strategies, including mergers and acquisitions. As the FinTech sector continues to evolve, it is essential to closely monitor the developments and partnerships that shape its future.
