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Financial Services (1H 2023): Complementary services and diversification a common trend across the sector

This Edge Insight focuses on notable activities related to the sectors covered by SPEEDA Edge under the FinTech Services vertical from January 2023 to June 2023 (1H 2023): FinTech: Banking and Infrastructure, Wealth Tech and Sustainable Finance, InsurTech, FinTech: Blockchains, and FinTech: Payments.

Key takeaways

  • Funding:

    • Significant slowing in funding volumes; mega deals accounted for three-fourths of all funding: FinTech Services saw total funding declining 43% YoY to USD 13.5 billion. However, the sector witnessed 20 mega deals (USD 100 million+), which collectively raised more than USD 10.0 billion (~75% of total). Leading payment services startup Stripe secured the largest amount of funding by raising USD 6.5 billion in Series I financing, achieving a valuation of USD 50 billion.

  • Regulations:

    • Stricter laws being finalized for cryptocurrency exchanges and digital tokens issuers: The Markets in Crypto Assets regulation finalized in May 2023 (to take effect from 2024) was the first set of laws aimed at regulating crypto exchanges and digital token issuers. This regulation offers clear definitions for crypto assets and enforces laws pertaining to governance, reporting, and capital requirements of such exchangers and issuers. In the same month, the International Organization of Securities Commissions (IOSCO) also published a set of standards and policy recommendations proposing a global approach to regulating the crypto industry.

  • Product updates: 

    • Complementary offerings abundant amid some notable launches from incumbents: During 1H 2023, we counted 70+ product launches, which focused on complementing existing offerings, diversifying business models, and creating additional revenue streams in response to challenging market conditions. For instance, certain neobanks launched investing platforms and premium subscription services, such as Revolut, which launched a new subscription plan called Ultra and a robo-advisory platform, while neo-insurers pivoted toward distribution services (Wefox’s Global Affinity Business). Moreover, the period saw incumbents such as Apple foraying into the Buy Now, Pay Later industry and JP Morgan piloting a biometrics payment solution with plans for a larger roll-out in 2024.

  • Partnerships:

    • Enhancing existing product portfolio and value additions driving partnership activity: Similar to product updates, partnership activity focused on launching new products or features that enhance the existing product portfolio of customers. In addition, incumbent activity remained strong, with notable partnerships between Microsoft, Goldman Sachs, Deloitte, and Cboe Global Markets to develop a new blockchain network for financial product smart contracts, and Wells Fargo, JP Morgan, and Bank of America developing a new digital wallet to rival Apple Pay.

  • M&A:

    • FinTech players actively seeking entry into youth money app market: We counted 49 M&A transactions within the FinTech Services vertical in 1H 2023. Most of these were primarily aimed at adding new products and services to complement their existing product portfolios. Furthermore, a notable trend emerged, with FinTech companies entering the youth money app and card market to capitalize on its significant growth potential.

  • Outlook:

    • More consolidation expected as funding environment remains challenging: As interest rates are expected to continue rising, access to funding may become more exclusive, favoring well-established and promising companies. Consequently, smaller, unprofitable companies may encounter challenges in raising funds, leading them to explore M&A opportunities to survive.
    • Crypto regulations to drive more adoption amongst retailers: The implementation of more stringent regulations on the cryptocurrency industry will instill confidence among the public, encouraging greater adoption. Furthermore, the anticipation of additional regulations aimed at combating money laundering is likely to act as a deterrent against rug pulls and scams.

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