In the first quarter of 2021, fintech companies raised $21 billion across 909 deals driven in large part by the activity of payments companies, which accounted for $5.7 billion, according to PitchBook.
The fintech industry’s massive first quarter – which came close to matching the $21.6 billion high from Q2 2018 – could be partly chalked up to the venture industry’s overall massive year. But the very nature of the fintech market may very well be changing as a result of covid-19, and with it, an entry into new geographic markets may be opening.
“The fact is valuations are very high and we are seeing the most interesting opportunities in fintech right now,” Addie Lerner, founder and managing partner at Avid Ventures, told Venture Capital Journal.
“I don’t think they’re unrelated,” she added.
Avid is traditionally a young, generalist investor but has been deploying more and more into fintech as the market heats up. Even with their finger on the pulse, the digital acceleration exhibited in recent years seems to be expanding the definition for what a fintech company can be.
“It’s become quite apparent to us in the last couple of years that most companies are, in some ways, becoming a fintech company,” Lerner said.
The covid-19 pandemic ignited digital adoption at unprecedented speeds to make up for the lack of in-person activity. This has led many companies, including those developing HR software and commerce tech, among others, to develop transactional technology which helps to facilitate payments, according to Lerner. This expands their revenue growth potential and drives up their valuation, she added.
Robinhood, Klarna and Stripe have garnered quite the reputation as some of the largest and most ubiquitous fintech companies. But even early-stage companies such as Fast and TaxBit are beginning to reach unicorn status.
“Part of the reason fintech unicorns are being created so quickly is because of these wild tailwinds from covid, accelerating the digital adoption of financial services online, as well as legacy financial services players needing to adopt digital technologies,” Lerner said.
But the environment for investing in young fintech start-ups may very well exist outside of the US.
“We actually see most of the near-term opportunities for very fast growth happening in markets outside the US,” Lerner said. “In particular, emerging markets like Latin America.”
Thanks to the success of companies like Brazilian fintech company Nubank, now the largest neobank in the world and boasting a $25 billion valuation, large investors are now looking to discover the next tech unicorns in historically underserved countries. But LatAm VCs have long helped to cultivate this environment.
The same cannot be said for a region like Africa, whose fintech environment is experiencing unprecedented growth in 2021 and doesn’t have the same history of local investors, according to PitchBook.
Fintech start-ups on the African continent raised $330.5 million in the first half of this year, already more than doubling the full-year figure from 2020, according to a report from Disrupt Africa. There are roughly 576 active fintech start-ups on the African continent, with 67.9 percent of them located in the big three markets of Nigeria, Kenya and South Africa.
Much of the African fintech market is concentrated in payments and remittances platforms, which accounted for $542.8 million in deal value between 2015 and 2021. Lending and blockchain technologies came next with each accruing $130.9 million and $46.2 million, respectively, according to Disrupt Africa.
But large foreign investors are already beginning to swoop in. Japan’s Uncovered Fund launched a $15 million vehicle to invest in African start-ups while American behemoth Tiger Global expanded onto the continent with investments in companies such as FairMoney and Kuda, according to TechCrunch.