The total funding and number of deals in the fintech sector fell in the second quarter in the face of high-profile U.S. bank collapses in the spring.  

In Q2, global fintech funding slumped to $7.8 billion, down by 48% quarter over quarter, while number of deals dropped by 22% sequentially to 845, lowest since 2017, per a CB Insights “State of Fintech” report released July 19.

Meanwhile, global fintech funding hit $22.9 billion across 1,922 deals year to date through July 19, while average deal size dipped to $15.4 million in 2023 YTD compared to $17.2 million in 2022, according to the report.  

In the U.S., there were 309 deals in the second quarter, raising $3.6 billion, amounting to nearly 37% of all fundraising this past quarter, according to the report. 

Deals worth more than $100 million dropped by 20% QoQ to 12 in Q2, and the amount raised through mega funding ($100 million+) also dipped by 78% to a mere $2 billion. 

The report also stated: 

• Banking fintech funding dropped by 20% since Q1 2023 to $400 million; 
• Global payments sector funding declined by 75% sequentially to $2 billion; and 
• Wealth tech funding declined by 38% from Q2 2023 to $800 million. 

BaaS sees renewed interest in 2023 

Despite a slump in fintech funding activities, investors are opening their checkbooks to invest in or acquire banking-as-a-service (BaaS) providers, per a CB Insights report released June 23.

FIs and tech providers, including Fifth Third Bank, Fidelity Information Services and Topicus, invested in BaaS providers this year, reinstating potential for future revenue, the report stated.  

In June, Missouri-based United State Bank selected BaaS provider Bankjoy to upgrade its legacy stack and provide it with online account opening, Bankjoy Chief Executive Michael Duncan told Bank Automation News, noting United State Bank looked to Bankjoy to boost deposit growth and prioritize digital transformation efforts.  

Regional and community banks are challenged with attracting new customers and generating stable deposits, making digital transformation “relating to account opening particularly crucial this year and it’s led to increased demand for products like Bankjoy’s Online Account Opening,” Duncan said. 

Additionally, BaaS presents lucrative revenue opportunities for banks, Anisha Kothapa, lead fintech analyst at CB Insight, told BAN.  

“Banks are exploring alternative revenue sources given the projected declines in traditional banking revenue,” she said.

Fintech players, too, including Square, Toast and Clover are also looking to up their BaaS services to provide a one-stop shop for all financial services needs, Deepak Goyal, an analyst at consulting agency BCG, told BAN.