CB Insights recently published a Q2 2019 Global Fintech Report, highlighting trends in financial technology investments and deal activity. The report gives constructive insight to investors interested in the sector’s financial opportunities and growth.
In 2018, fintech companies raised roughly $58 billion through 1,707 deals. This strong backing sparked interest in the sector as a growing opportunity for investors and entrepreneurs. In H1 2019, global fintech saw 838 deals worth $15.1 billion. While these are still promising figures, fintech did see a global dip in deals during Q2.
Q2 2019 also saw a drop in venture capital backed deals, falling to $367 million, the lowest since 2016’s fourth quarter.
Nonetheless, other trends outlined in CB Insights’ report show incredible and continued growth for the sector.
According to the report, the first half of 2019 has been strong for the fintech sector in many respects, largely maintaining 2018’s momentum. Globally, fintech startups raised $8.3 billion in the second quarter while achieving 25 mega-deals reaching more than $100 million. Currently, there are now 48 fintech unicorns worth a total of $187 billion, 28 of which reside in the United States. Seven of these startups entered the market in Q2 2019 - Markets, Bill.com, Carta, Lemonade, Checkout.com, Value, and Liquid.
Internationally, CB Insights’ reported that Latin America proved in Q2 to be one of the fastest growing regions for fintech funding, topping both India and China with 23 deals worth $481 million.
Q2 2019 was also strong for emerging sub-sectors within the fintech ecosystem. In the first half of the year, digital banking companies raised over $2.5 billion and now boasts over 230 million mobile users.
Within the digital banking sub-sector, challenger banks also continued to raise significant capital, with over $649 million across 17 deals. Challenger banks, such as Credit Karma and Coinbase, make up the biggest cohort of the fastest growing fintech startups. Meanwhile, capital markets tech companies concluded large rounds of funding in the first half of the year, raising nearly $2 billion.
Despite this continued and steady growth, the sector will likely follow the 2018 trend of lackluster IPO activity. In 2018, only three fintech unicorns went public. Due to a record number of mega-rounds, 2019 IPO activity will likely be just as slow.
Investors should still keep track of these impressive startups nonetheless, as the number of VC-backed deals did dip this quarter. However, due to the overall trend of large and successful funding rounds, it is expected for these companies to be much larger at the time of IPO, providing less benefit to individual investors.
Despite the slow pace of IPOs, these fintech startups still provide great investment benefits. As companies like Visa (NYSE:V), PayPal Holdings (PYPL) and Discover Financial Services (NYSE:DFS) continue to acquire these innovative startups, their stock prices and stockholders continue to prosper. For example, PayPal’s acquisition of Venmo, the incredibly successful mobile payments app, had a hugely advantageous impact on their stock. In fact, all three of these stocks recently jumped into the IBD 50 roster of growth stock.
Other fintech stocks that investors are suggesting as long-term buys are Intuit Inc (NASDAQ:INTU), Square Inc (NYSE:SQ), Envestnet Inc (NYSE:ENV), and Blackline Inc (NASDAQ:BL).
It is important for investors to continue following these exciting trends in the fintech sector, as market disruption and innovation provide incredible opportunities.