In Q3 2023, digital lending saw the largest funding jump among all major fintech categories, with companies in the sector securing a total of US$1.7 billion through 60 deals, data from market intelligence platform CB Insights show.

These metrics represent a 70% quarter-on-quarter (QoQ) increase in funding volume from Q2’s US$1 billion but a 56% QoQ decrease in deal count from 136 during the prior quarter.

Digital lending’s funding boost was driven in part by later-stage mega-rounds, which brought in more than half of the sector’s quarterly funding. India-based data analytics solution Perfios raised the largest digital lending round (US$229 million Series D), followed by Indonesia’s Amartha (US$206 million), the UK’s Fleximize (US$168 million) and the US’s PayJoy (US$150 million Series C).

With a total of US$900 million secured, Asia led the world in digital lending funding, ahead of the US (US$500 million) and Europe (US$300 million).

After digital lending, insurtech was the second largest fintech segment by VC funding, securing a total of US$1.1 billion in Q3 2023. The segment led in deal count, with 119 funding rounds recorded during the quarter. The figures represent a 22% QoQ increase in funding volume and a 20% increase in deal count.

The US make up the lion’s share of insurtech funding in Q3 2023 (55%), followed by Europe (21%) and Asia (15%).

Insurtech companies Openly (US$100 million) and Resilience (US$100 million), both from the US, Tractable from the UK (US$65 million) and Leads Connect from India (US$63 million) raised the largest rounds of the quarter.

Following digital lending and insurtech, payments was the third largest fintech segment by funding volume (US$1.1 billion). The sector is followed by banking and capital markets tech, both at US$300 million, and wealthtech at US$200 million.

Global fintech funding stagnates; Asia sees uptick

Fintech funding continued its downtrend in Q3 2023, totaling US$7.4 billion through 754 deals in Q3 2023, the data show. The figures represent a 3% QoQ decline in funding volume and 18% QoQ decline in deal count.

The fintech funding stabilization was supported by the return of US$100 million mega-rounds, which rose 50% QoQ to hit US$2.4 billion in Q3 2023. Mega-rounds accounted for 33% of all fintech funding in Q3 2023, a much larger share than the 22% recorded in Q2 2023.

Asia led in mega-round funding by securing US$1.1 billion across five deals, against US$1 billion for the US, US$200 million for Europe and US$100 million for Latin America.

Asia was also the only region to record an increase in fintech funding in Q3 2023, securing a total of US$2 billion in fintech funding, up 82% QoQ.

The uptick was driven by large rounds of funding closed by fintech startups located in the region. These deals included Micro Connect’s US$458 million Series C (Hong Kong), Perfios’ US$229 million Series D (India), Amartha’s US$206 million round (Indonesia) and Veritas Finance’s US$146 million Series F (India).

Although US fintech companies drove almost half (47%) of all quarterly fintech funding in Q3 2023 by securing US$3.5 billion, US fintech funding dropped by 5% QoQ.

European fintech companies, meanwhile, raised a total of US$1.3 billion through 181 deals in Q3 2023, down from the US$1.9 billion raised through 247 rounds in Q2 2023.

Fintech enters new era

After decades of hypergrowth and record funding levels, the fintech industry has entered a new era of value creation where the focus is now on sustainable and profitable growth.

In the latter half of the 2010s, the sector witnessed substantial growth with VC funding increasing 17% year-over-year (YoY) from US$19.4 billion in 2015 to US$33.3 billion in 2020, data from global consultancy McKinsey show. This growth accelerated in 2021 due to the pandemic’s effects, with fintech funding reaching US$92.3 billion that year, representing a 177% YoY increase.

However, in 2022, a market correction and a challenging business environment triggered a slowdown in the sector’s explosive growth momentum, prompting a decline in funding and deal activity, a decrease in new unicorn creation, and a slowdown in initial public offerings (IPOs) and special purpose acquisition company (SPAC) listings. In 2022, fintech funding dropped by 40% YoY in 2022 to US$55 billion, the data show.

Looking ahead, McKinsey predicts that although the fintech industry will continue facing challenges, several massive opportunities still exist and are up for grabs.

In particular, the firm notes that the traditional banking sector is undergoing a profound digital transformation, leading to growing demand for fintech solutions catering to traditional lenders and banks.

It also notes that businesses and corporate are increasing turning to fintech solutions, fueling growth in the business-to-business (B2B) fintech category. It claims that two B2B verticals in particular are seeing strong traction: banking-as-a-service (BaaS) and embedded finance, as well as small and medium-sized enterprise (SME) and corporate value-added services.

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