FinTech unicorns rise and US dominates deals amidst global downturn

By Puja Sharma

FinTech startups hit a wall in 2023, with annual funding cut by half

The FinTech sector has not been spared from the sweeping downturn in the venture market. In fact, in 2023, funding to FinTech startups dropped off more severely than broader venture funding.

Globally, funding to FinTech startups fell 50% YoY, slipping below $40bn for the first time since 2017. FinTech fared worse than the broader venture market, which saw funding decline 42% YoY in 2023.

The average and median deal sizes in FinTech continued to decrease from 2021’s highs, falling to $13.8m and $3.2m, respectively, in 2023.

Among global regions, LatAm and Europe saw the largest drops in FinTech funding in 2023:

• LatAm funding slid 68% to $1.2bn
• Europe funding fell 64% to $6.5bn

Q4’23 was a particularly harsh quarter for FinTech in terms of deal activity.

The quarter saw FinTech startups secure just 740 deals — the fewest in a quarter since Q4’16, and the third straight quarter of declines.

Among the top deals of the quarter, payments solutions for online and in-person shopping were prominent.

These included SumUp ($307m Series F), as well as buy now, pay later players Tamara ($340m Series C) and Tabby ($200m Series D). Notably, payments leaders Checkout.com and PayPal invested in the deals to Tamara and Tabby, respectively.

Despite global declines in deal volume, the US picked up a greater share of deals in 2023 at 41%. The 4-percentage-point increase came at the expense of Asia, which lost 3 percentage points in share YoY. The US’ share was the highest for the country since 2016.

FinTech dealmaking in the US has shifted toward the early stages (seed/angel and Series A), which now claim 70% of all US deals — the highest annual share in more than a decade.

While down from a peak in Q1’22, M&A activity remains relatively steady for FinTech startups. Financial services incumbents, larger FinTech firms, and PE buyers continue to seek out undervalued assets. In Q4’23, global M&A volume ticked up to 149 deals.

While Europe led in M&A deal share in Q4’23 at 34%, the top 3 M&A deals that quarter all went to US-based firms:

• In capital markets, TMX Groupacquired VettaFifor $1.1 billion.
• In insurance, Travelerspurchased Corvus Insurancefor $435 million.
• In business payments, WEXacquired Payzerfor $261 million.

Key Trends:

• Global FinTech funding nosedived to $39.2B in 2023 (down 50% YoY), while deal volume slipped 38% to 3,801 — the lowest levels since 2017.On a quarterly basis, Q4’23 saw the fewest FinTech deals in 7 years.
• The US increased its dominance of FinTech, drawing 41% of deals in 2023 — its highest share since 2016. Meanwhile, Asia’s share fell to a recent low of 20%. The uptick in US deal share came as investors shifted toward early-stage companies. Early-stage deal share in the US climbed to its highest level in more than a decade.
• At 612 deals, annual M&A exit volume remains higher than it was any year prior to 2021.Quarterly M&A deals saw a modest gain in Q4’23, rising to 149. Europe saw 34% of these deals — more than any other global region — but the top 3 M&A exits in Q4’23 all went to US FinTechs.
• Eight FinTech unicorns were born in Q4’23 — a 6-quarter high, but far below 2021’s quarterly average. Asia contributed half of the new unicorns, three of which are based in Gulf States. This was the first time since 2019 that more FinTech unicorns were born in Asia than in the US in a given quarter.
• Investment in banking startups has evaporated, with funding falling 72% in 2023 — the biggest YoY decrease across FinTech sectors. Payments startups saw funding decline just 30% YoY—tthe least of any FinTech sector—though the annual funding total was propped up by 2 massive rounds to Stripe($6.5bn) and Metropolis ($1bn). Payments remains the most well-funded FinTech sector by a wide margin.