What was Q3 2023 like for the FinTech sector? For the third edition of our quarterly market update we took a detailed look at the current dynamics for M&A, private placements and IPOs and compared them over time. We also analyzed the global FinTech market to create a comprehensive overview of the landscape, as well as a deep dive into relevant sub-verticals: payments, insurtech, wealthtech, core banking & lending, financial data, blockchain & crypto.
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Here are some of our key insights for Q3 2023:
- The number of closed FinTech M&A deals declined slightly to 103 vs. 135 in the previous quarter, a year-on-year decrease of 24% which can be attributed to ongoing economic and geopolitical uncertainties.
- $1bn+ FinTech M&A deals were scarce in Q3 2023 with just one announced, the lowest since Q2 2013.
- The US remains the hottest place for FinTech M&A activity in Q3 2023 with 70% of deals.
- As highlighted in our recent Drake Star Payments report, Payments M&A activity has dominated, growing to represent over 50% of all FinTech M&A activity.
- Despite lower M&A activity, funding in Q3 2023 rose to $8.3bn, a 6.5% increase vs. Q2 2023.
- Rising cost of capital and diminished focus on cash-burning companies, coupled with overall market uncertainty are driving institutional FinTech investors towards sub-$100m investments.
- In Q3 2023, both public B2B and B2C FinTechs experienced negative share price performance compared to Q2 2023. These can be attributed to heightened market pressure resulting from elevated interest rates, lackluster IPOs, and an increasing focus on profitability.
- FinTech IPOs have vanished with no significant IPO since the beginning of 2023 due to high economic and geopolitical uncertainty. Investors are much more pessimistic on the market environment.
Julian Ostertag, Managing Partner and Member of Global Executive Committee at Drake Star, says: “Our report shows an overall challenging environment for the FinTech industry due to economic uncertainty. This also explains why the focus went from cash-burning companies to early profitability. Funding, however, rose to $8.3bn, a 6.5% increase vs. Q2 2023. I’m very curious to see what the future of finance holds – especially when it comes to the implementation of new technologies and business models that emerge.”
Trends, insights and takeaways on the future of finance from our teams are the following:
- Money 20/20 takeaways: A refocus on payments rather than the broader fintech landscape, more attention on fraud and regulation, BNPL peaked in 2022 but remains a hot topic, and open banking a theme that will persist in future.
- Innovative Technologies: The advancements in fintech, open banking, AI, and crypto/blockchain solutions show: The future of payments, banking, and finance is here, and it's digital, faster, and more inclusive.
- Trending topics include digital currencies, financial regulations, sustainable finance, and the challenges of bridging the gap between traditional banking and fintech.
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