Resources

WOLF & CO Insights Fintech Trends 2020: A Year in Review

Fintech Trends 2020: A Year in Review



When discussing the financial industry nowadays, it seems you can’t avoid the mention of fintech. It’s everywhere—and it’s steadily expanding its reach to almost all aspects of banking. Empire Startups recently released an end-of-year wrap-up report detailing what happened in the fintech world in 2020, showcasing everything from geographic concentrations and sector distribution, to fundraising efforts and capital raises. We’ve analyzed the report and pulled some of the most striking statistics that highlight the immense growth seen in the sector, and help predict what we can anticipate for the future of fintech.

Geography

Top 5 States with the Most Fintech Deals

State California New York Texas Massachusetts Florida
Number of Deals 303 179 37 36 27

Empire Startups: Fintech Venture Deals 2020

Investments continue to be made in locations with strong technology ecosystems like California, New York, Texas, and Massachusetts. These locations have resources including talent, associations dedicated to advancing early stage fintech companies, and strong financial industries to support early stage company development. Well-established businesses within profitable industries are more willing to invest resources, time, and money to work with early stage fintechs. The development opportunities gained from working with these sturdy businesses may be crucial if economic uncertainty continues.

The benefits of being located in a prospering ecosystem are apparent. Surrounding yourself with resources, expertise, and capital will increase your chances of finding the right partner or capital investment to take your company to the next stage. Fintech companies not located in areas built to enable their development should consider the cost-benefit of relocating to other states that are more focused on technology initiatives. It’s hard to go at this alone, and there are locations where success is more likely.

This will be something we’ll want to keep an eye on to see if the impacts of COVID-19 diminish the benefits of being in one of the well-established fintech ecosystems.

Leading Sectors by State

The table below shows the percent of total fintech deals made in the leading sectors in each state.

CALIFORNIA

  • Payments/Billing (15.38%)
  • InsurTech (10.36%)
  • Capital Markets (9.32%)
NEW YORK

  • Wealth Management (11.72%)
  • Capital Markets (10.94%)
  • InsurTech (9.90%)
MASSACHUSETTS

  • InsurTech (21.95%)
  • Personal Finance (12.20%)
  • Business Intelligence (9.76%)

Empire Startups: Fintech Venture Deals 2020

Different markets are already developing specific fintech sector concentrations. For instance, there are prominent insurance companies in the above listed states, which makes the development of insurance technology more likely. In these locations, early stage tech companies working on insurance solutions have better access to information that enables company growth. It’s important to align a technology company’s objectives within a state that shares similar objectives. In addition, states with a larger emphasis on technology initiatives are more likely to provide a supportive ecosystem that will enable fintech evolution.

Sector by Sector Breakdown

The table below shows the percentage of total fintech deals by sector (and the number of deals) during 2019 and 2020.

2019 2020 Variation
Mortgage/Real Estate 6.06% (66) 7.75% (68) 1.69%▲
Payments/Billing 12.58% (137) 14.03% (123) 1.44%▲
Wealth Management 7.35% (80) 8.67% (76) 1.32%▲
Blockchain/Crypto 6.34% (69) 4.56% (40) 1.78%▼
Business Intelligence 8.82% (96) 7.07% (62) 1.75%▼
Digital Banking 9.18% (100) 7.53% (66) 1.66%▼

Empire Startups: Fintech Venture Deals 2020

With interest rates at historical lows and COVID-19 causing people to reconsider urban living, it’s not surprising that the mortgage and real estate sector saw an uptick. Also, although there was a dip in deals in the blockchain industry, recent trends in that sector indicate that it will likely bounce back in 2021. Meanwhile, finance, accounting, and business analytics were a huge focus for small to medium-sized businesses this year, which increased their investment rate in the area. Lastly, digital banking remains a focus for financial institutions, even though its deals dropped in 2020.

Although it’s only a single year-over-year comparison and there were relative winners and losers in 2020, it’s clear that fintech is a hot sector. As a result of the pandemic, more companies are embracing fintech innovation.

Volume vs. Dollars

The table below breaks down how many fintech deals were made during each quarter of 2020, along with the total amount of capital raised.

Q1 Q2 Q3 Q4 2020 Total 2019 Total
Number of Total Deals 283 211 206 163 864 1,090
Capital Raised (M) $3,264 $3,736 $6,347 $4,072 $17,419 $15,481

Empire Startups: Fintech Venture Deals 2020

In each successive quarter, the number of total fintech deals decreased, but the amount of capital raised increased. Similarly, between 2019 and 2020, the number of total fintech deals decreased, but the amount of capital raised increased.

This can be attributed to the negative impacts of COVID-19 on the industry. The fintech companies with proven technologies continued to raise larger amounts of capital, but overall activity declined most likely due to investors’ financial wariness in the unstable economy. There’s still money to be invested, but the pandemic made the process of receiving that investment more difficult.

In 2021, fintechs will need to not only prove their technology, but also their ability to scale prior to receiving funds. This may lead to an increase in fintechs partnering with more mature companies to refine their products prior to seeking investment. Showcased by the decline in deals, it might be more difficult to raise capital in today’s economy. Venture capital may not be as readily available as it was prior to the pandemic.

Also, many industries already see the benefit of working with early stage tech companies to improve operations. Fintechs should target well-established businesses that have already proven to be early adopters of technology and are committed to changing their business practices to incorporate fintech.

Conclusion

With 2020 behind us, it seems that 2021 is off to a great start—with private fintechs raising $2.4B in venture capital in the first week of January alone. Investors see fintech as the future and are willing to commit capital. There are quite a few considerations to take into account when founding, funding, and growing your fintech, and the trends seen over the last year give a holistic view of what we’ll see in the year to come. With fintech being such a dynamic industry, one thing we can be certain of is that 2021 will look different than 2020. But as the old saying goes, ‘past is prologue!’