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FinTech on steroids

The global FinTech capital market has picked up over the first quarter of 2021, with $10.9 billion raised (up 21%) through 253 transactions (up 32%).
While capital mainly benefited the most mature finance start-ups in 2020, in 2021 it could flow mainly to FinTech firms raising series A funding. An analysis of early funding rounds in Europe hints at this trend.

Avec 149 rachats industriels recensés au niveau mondial au cours de ce premier trimestre, le marché des fusions-acquisitions voit ses opérations fintech progresser de 83%. La crypto-sphère rejoint les paiements au panthéon des FinTech deals in the mergers and acquisitions market were up 83% in the first quarter, with 149 industrial takeovers worldwide. The cryptosphere has joined payments as one of the most buoyant segments for M&A activity.

And with cryptocurrencies also having a spectacular first quarter, it’s clear that 2021 is going to see growing investor interest in cryptoassets and their trading, security and traceability. Notable among the 51 transactions in Q1 were funding rounds by BlockFi ($350 million), Blockchain.com ($300 million) and Bitpanda ($170 million) and the acquisition of TradeBlock by CoinDesk, Alertatron by Stacked and Curv by PayPal.

US FinTech firms show they can quickly progress through funding rounds

Of the 120 US funding rounds completed in Q1, 45% were series B or higher. Along with Brazilian neobank Nubank, Blend, Quantfind and Stash are all on the verge of going for a stock market listing. Online payment specialist Stripe, whose IPO (Initial Public Offering) is nearing, wrapped up its 13th funding round with a whopping $600 million of series H funding. The company is valued at an eye-watering $95 billion – equating to 70% of the combined market capitalisation of all CAC 40 banking stocks – making it already the second highest-valued private company in the world behind Chinese online giant ByteDance and ahead of Elon Musk’s SpaceX, one of whose rockets will be powering French astronaut Thomas Pesquet into space on 22 April.
Meanwhile, European FinTech firms raised a total of $2.9 billion through 59 transactions, confirming the strong momentum seen in the final quarter of last year. Furthermore, with 54% of Q1 funding at series A level, the dynamism of the European ecosystem shows no sign of flagging. European start-ups are maturing, with 39% of them at least at their fourth funding round.

2021: the year FinTech goes to the stock market

In the FinTech world, IPOs will be a key feature of 2021, with Coinbase, Robinhood, Marqeta, SoFi, Payoneer, eToro, Paysafe, Stripe and Wise all expected to complete listings. With more and more US SPACs (Special Purpose Acquisition Companies) aggressively targeting high-potential new technology firms in the finance sector, US financial markets are likely to reap the benefits this year at the expense of Europe’s burgeoning listed FinTech market.

In the United States, setting up a SPAC has become the hottest route to a stock market listing. March confirmed the trend towards using these listed shell companies to carry out reverse merger IPOs. According to financial market platform Dealogic, out of a total of 398 US IPOs completed in the first quarter, 298 were carried out through SPACs, for a combined market capitalisation of $95.3 billion. A few SPACs have said they are targeting FinTech firms and a number of reverse mergers are under consideration. These are likely to provide the likes of SoFi, Payoneer, eToro, Paysafe and Wise (formerly TransferWise) with the opportunity they need to conquer the stock market.

Despite a handful of initiatives, European SPACs remain few and far between. For international investment funds tired of absorbing losses sustained by the loss-making business models of Europe’s finest FinTech players and financing their substantial investments, the option of a US SPAC is very tempting. As well as quickly and efficiently meeting a structural need to raise large amounts of fresh capital, a SPAC provides an opportunity to realise capital gains at the top of the valuation cycle. This divergence between the United States and Europe could prompt European FinTech firms to abandon their home markets and seek US listings.

An explosive first quarter for French FinTech firms gorged with series A funding

According to a survey of FinTech funding published on 2 April by industry body France FinTech in partnership with Bpifrance, French FinTech firms raised a total of €383.2 million through 33 transactions in the first quarter of 2021. While it’s difficult to define exactly what constitutes a FinTech firm, our data confirms that the €300 million threshold was indeed exceeded over the first three months of the year. The first quarter was dominated by four key deals in the French FinTech space (PayFit, Alma, Indy and TagPay) totalling €200 million – at least half the total amount of funding raised between January and March.

Analysis by France FinTech highlighting very buoyant fundraising activity by French FinTech firms, combined with the fact that 60% of transactions in the quarter involved seed or series A funding, supports our opinion of a very healthy ecosystem. This is particularly true in the payments segment, now broadened to include cryptocurrencies. While this situation is an advantage when it comes to attracting investors seeking new opportunities, it also presents a challenge: these fledgling companies now need to deliver on their promise to scale up.

In France, we think the segment offering the greatest potential for FinTech firms outside the payments sector is insurance. The highly coveted French market has yet to be conquered, and non-French players (like Zego, Friday, Lemonade and WeGroup) are quietly rolling out their offerings. The future for French InsurTech firms undoubtedly lies in embedded insurance solutions for healthcare, mobility and retail operators.

For more information, see our post “Q1 2021 FinTech outlook: FinTech on steroids” (in French)

 

Romain LIQUARD

romain.liquard@credit-agricole-sa.fr

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