The Economist - USA (2021-07-17)

TheEconomistJuly17th 2021 61

Finance & economics

Fintech

The funding frenzy

A

n air ofhype habitually surrounds the
founders of startups and their venture­
capital  backers:  everyone  is  an  evangelist
for  their  latest  project.  But  even  allowing
for that zeal, something astonishing is go­
ing  on  in  fintech.  Much  more  money  is
pouring  into  it  than  usual.  In  the  second
quarter of the year alone it attracted $34bn
in venture­capital funding, a record, reck­
ons cbInsights, a data provider (see chart
1). One in every five dollars invested by ven­
ture capital this year has gone into fintech. 
Deals  are  also  proceeding  at  a  frenetic
pace.  PitchBook,  another  data  provider,
reckons  that  venture­capital  firms  have
sold $70bn in stakes in fintech startups so
far this year, nearly twice as much as in all
of 2020, itself a bumper year (see chart 2 on
next  page).  That  included  32  listings.  Fin­
techs  took  part  in  372  mergers  in  the  first
quarter, including 21 of $1bn or more. 
In the past few weeks alone Visa, a cred­
it­card  firm,  has  paid  €1.8bn  ($2.1bn)  for
Tink,  a  Swedish  payments  platform.
JPMorgan  Chase,  America’s  largest  bank,

hassaidit willbuyOpenInvest,whichpro­

vides sustainable­investment tools—its

third fintechacquisitionin sixmonths.

Upstarts,suchasRaisinandDepositSol­

utions, two German platformsthat link

bankswithsavers,aremerging.Someare

goingpublic.OnJuly7tha listinginLon­

donvaluedWise,a money­transferfirm,at

nearly£9bn($12.2bn).Recentorplanned

multi­billioninitialpublicofferings(ipos)

includethatofMarqeta(adebit­cardfirm),

Robinhood(ano­feebroker)andSoFi(an

onlinelender).

This blizzard of activity reflects de­

mandfrominvestorsastheyhuntforre­

turnsandasthedigitalsurgeinfinance

takes off. But italso reveals something

moreprofound.Oncetheinsurgentsoffi­

nance,fintechfirmsarebecomingpartof

theestablishment.

Thecurrentinvestmentboomhassev­

eralnovelfeaturesbeyonditsscale.Fora

start,itisincreasinglyfocusedonthebig­

gestfirms,saysXavierBindelofJPMorgan.

Smallerme­toosandstartupswithbusi­

nessmodelsthathavestruggledduringthe

pandemicarenolongerinfavour.Thefirst

quarter of 2021 saw the most funding

rounds everfor private fintech startups

valued above $100m;themedianround

raised$10m,aquartermorethaninthe

sameperiodlastyear.

The locationofactivityhaschanged,

too.Fiveyearsagothefintechstorycentred

onAmericaandChina.Today,Europeis

catchingup.AfundingroundinJuneval­

uedKlarna,a Swedish“buynow,paylater”

startup,at$46bn,making itthesecond­

most­valuableprivatefintechfirminthe

West.OnlyJuly15thRevolut,aLondon­

basedneobank,saidithadraised$800m,

valuingitat$33bn.FirmsinLatinAmerica

Investment in fintech is booming as the upstartsjointhefinancialestablishment

→Alsointhissection

62 BumperearningsonWallStreet

63 TheECB’snewtarget

63 Inflationsurprises—again

64 Benefitsandlabourshortages

64 Willspecialdrawingrightshelp?

65 Buttonwood:A profitssqueeze

66 Freeexchange:Carbontariffs

Swarming in

Fintech companies, venture-capital funding , $bn

Source: CB Insights

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