A decline in investment into the fintech sector has been exacerbated by the pandemic, new research has found.
A report from US market research firm Forrester revealed that funding into fintech firms in the first quarter of 2020 was 46 per cent lower than it was in the third quarter of last year.
The market for funding was already on a downward swing at the end of 2019, the report said, but is set to decline further this year due to the economic slowdown caused by the pandemic.
The report noted that private financing dropped significantly after the 2001 and 2009 economic downturns, so is likely to do so again.
“Fintech funding contracted in the first quarter of 2020 on account of coronavirus uncertainty,” said Oliwia Berdak, VP research director.
“Mainland China was the first region to shut down, and no Chinese fintechs closed rounds despite a steady stream of funding there for the past few years.
“As investors negotiated uncertainty, they piled into overcrowded areas of digital banking and lending.
“Going forward, we expect investors to hedge their bets by supporting only the most mature fintechs – as Stripe’s April 2020 Series G round of $600m (£486.3m) demonstrated.
“As funding dries up and defaults rise, this will make for a challenging environment, with a growth in fintech acquisitions as incumbent firms aim to make acquisitions on the cheap to bolster their digital capabilities.”
UK-based digital bank Revolut’s $500m fundraise was the biggest funding deal of the quarter, which saw it move into the top tier of a crowded market.
The companies that received the most funding add convenience to the way consumers and businesses already do their banking, rather than breaking out into uncharted territory.
“Only fintechs that had market traction, were profitable, or had secured a big funding round before Covid-19 struck will survive the upcoming consolidation,” Berdak said.