Pandemic-Driven E-commerce, Business Automation Boosts VC Fintech Investments

In CB Insights’ recently unveiled third annual list of the top private fintech companies, business automation, the growth of e-commerce and changes in the financial payments solutions market are some of the key factors influencing venture capital investments.

In the firm’s “The Fintech 250: The Top Fintech Companies of 2020″ report, the cohort of companies raised “approximately $49.2 billion in aggregate funding across nearly 900 deals since 2015, and includes start-ups at different investment stages of development, from early-stage companies to well-funded unicorns,” the company said.

Other findings of the report include that year-to-date, the 250 fintech firms raised $10.3 billion in equity capital across 120 deals. The report also noted that 32 of the companies are unicorns, which means they have valuations of more than $1 billion.

Here, CB Insights fintech analyst Alex Kern shares insights on some of the key takeaways culled from this year’s report.

WWD: Were you surprised by any of the trends in this year’s ranking? Which ones and why?

Alex Kern: The Fintech 250 is a great source for identifying which financial problems are becoming a focus for the best entrepreneurs and teams to solve. We made a new category this year, “Accounting and Finance,” due to the sheer number of companies within the rankings that are helping businesses automate those core business functions. And half of the companies within the category are earlier stage (last raised either a Series A or Series B).

This was surprising, in part because every company runs its own back-office differently, so building software that can integrate into workflows at scale is a big challenge. But there are a number of companies, such as Spendesk, that have a lot of momentum and we expect this to become a bigger area of focus within fintech.

WWD: What’s driving VCs to invest in fintech?

A.K.: There are many secular trends that have created opportunities for technology to provide an improved product or service within financial services. Major ones in the retail space include cash-to-digital and the growth of e-commerce, especially amid the pandemic.

But these two trends present a number of other challenges to solve, such as improving the online checkout experience, where shopping cart abandonment rates still hover between 60 to 80 percent.

Just in that interaction alone, there are issues such as the ability for the merchant to accept payments, the ease with which consumers can pay with their payment of choice, the opportunity for consumers to receive financing options at the checkout, and how businesses can better ingest and understand the data that comes along with these online purchases.

These are just a few of the many issues the fintech sector is solving now.

WWD: What are some of the notable attributes of the top unicorns?

A.K.: Of the unicorns on the list, 11 are under “Payment Processors and Networks,” which affirms the large market for payments globally (b-t-b, b-t-c and p-t-p).

More generally, all of the companies are targeting large markets, have executed well on either acquiring market share or building new markets for themselves, and have demonstrated consistent growth across multiple metrics we track.

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