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Fintechs attract $1T investment since 2010 – Bank for International Settlements

Funds raised by fintech companies in 2020 totaled 5% of global equity deals, up from less than 1% in 2010, according to the Bank for International Settlements.

There have been more than 35,000 fintech deals since 2010, amounting to more than $1 trillion, said the BIS, an international financial institution owned by central banks.

In 2010, total fintech deals numbered fewer than 600 and were worth about $11 billion. By 2019, however, total capital raised by fintechs exceeded $218 billion through almost 5,000 deals. Although this trend reversed in 2020 during the COVID-19 pandemic, investment has rebounded strongly in 2021.

The average annual growth rate of equity raised in global fintech deals was 45% between 2010 and 2020 — much higher than the 8% growth rate for non-fintech deals.

VC funding

The BIS also said venture capital funding for early-stage fintechs increases after M&A in the fintech sector involving large banks, but not after those involving Big Tech firms.

This, the institution said, suggested that by seeking to exploit synergies with fintechs, banks could spur fintech formation. Big Tech firms, in contrast, are often in direct competition with fintechs and might discourage users from joining fintech competitors and so limit fintech formation.

There is a growing geographical diversification of fintech deals, though the U.S., China, the EU and the U.K. remain the key locations. The U.S. accounts for 40% of fintech deals globally in recent years, and more than 50% by deal value. The EU, the U.K. and China together account for 33% of deals and 35% by value.

Fintechs raise more capital in countries with better regulatory quality, higher financial development and greater capacity for innovation.

Venture capital funding has increased, mostly due to activity in China, and accounts for more than a third of the value of all equity investment in 2021, up from 13% in 2010.

Sandboxes

Regulatory "sandboxes" — frameworks for testing fintech products in a controlled environment, which have been adopted in almost 60 countries — were also found to have spurred entry into the fintech sector.

Over the three years after such sandboxes are established, country-level investment in fintechs nearly quadruples as a share of GDP, said the BIS.

The proportion of deals in the fintech sector involving big data, artificial intelligence and machine learning — especially cryptocurrency and blockchain — has increased markedly, said the institution.