Fintech funding rebounded in the second quarter, after suffering a dip due to the pandemic, according to “The State of Fintech Q2’20″ report by CB Insights.

Funding increased 17% quarter-over-quarter to $9.3 billion from $7.9 billion in the first quarter, and the second quarter saw multiple fintech companies filing to go public, including nCino , Lemonade  and SelectQuote.

While funding volume has seen an uptick, the number of deals declined in the second quarter to 397 from 452 in the first quarter. Although deal activity shrank, mega-funding rounds of $100 million-plus hit 28 deals, a new quarter high since 2015.

The following fintech sectors attracted investor interest:

Payments
Payment sector funding remained relatively steady, increasing about $10 million quarter-over-quarter to $3.45 billion in Q2. Facebook and Google are looking to expand into emerging markets like Brazil and India, the report noted, while mobile money services are catching momentum among the middle class populations in sub-Saharan Africa and East Asia and Pacific regions. 

As online shopping gains momentum — making up 27% of all retail sales in 2020 compared to 16% last year — many fintechs have potential to grow in e-commerce, the report stated.  

Banking
Challenger bank deals declined for the second straight quarter to 54 from 63 in Q1, while funding amounts remained about the same at $2.25 billion, compared to $2.33 billion last quarter. Banking startups like Monzo and N26 , as well as the newly minted bank Varo , raised mega-funding rounds. Upgrade  was the only fintech to become a unicorn — a startup valued at over $1 billion — in Q2. There are currently 66 fintech unicorns valued at $248 billion  according to CB Insights. Upgrade, which offers a credit card and installment loan hybrid, plans to launch a checking account and debit rewards later this year.

The report noted that acquisitions could be on the horizon, saying, “Covid-19 may accelerate consolidation as leading challenger banks look to gain market share and expand their product offerings.”   

Alternative lending
Alternative lending funding increased to $1.7 billion across 55 deals from $866 million across 42 deals in Q1. The report noted that big tech firms are moving into buy-now-pay-later financing. Amazon and Apple both added options for interest-free installments, with Amazon’s Pay Later going live in India in April, and Apple expanding Apple Card’s interest-free financing in June. 

Wealth Management
Wealth management funding jumped to $1.1 billion across 32 deals compared to $450 million across 28 deals in the first quarter. The study noted wealth management startups are expanding their products. Betterment , for example, launched savings and checking accounts this quarter while Ellevest launched a membership model that includes bank accounts. Payments startup TransferWise , meanwhile, announced in July it will launch investment products on its cross-border payments platform in the next 12 months.

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