Digital Banking Startups Are Hot Again

After several slow quarters, we’re seeing a pick up in funding to digital banking startups.

In the past three months, investors have plowed close to $1.2 billion into a geographically dispersed group of online banking providers, Crunchbase data shows. Three of the largest funding recipients — One, Tyme and Current — announced new rounds this past week.

The single biggest haul went to One, a Sacramento, California-based startup offering online banking, debit cards and installment loans for purchases at Walmart, its majority stakeholder. Walmart and fintech investor Ribbit Capital led a $300 million round at a reported $2.5 billion valuation.

Tyme, which offers digital banking in South Africa and the Philippines, picked up the next-largest round: a $250 million Series D. Brazil’s Nubank led the financing, which sets a $1.5 billion valuation for the 5-year-old, Singapore-headquartered company.

Current, based in New York, announced its latest fundraise last week: a $200 million financing that brings investment to date to more than $600 million. The company says its revenue grew by over 90% this year and that it is aiming for profitability in 2025.

Those three weren’t the only big fundraisers. Using Crunchbase data, we put together a list of seven digital banking startups that disclosed large new financings in the past four months.

A time for exits

The funding spree comes amid anticipation of a fintech IPO comeback in 2025, with several big names prepping offerings.

One of the highest-profile companies is San Francisco-based Chime, a pioneering challenger bank founded in 2012 that has raised $2.3 billion in known equity funding to date. The company reportedly filed confidentially for an IPO, with Morgan Stanley tapped to lead the offering.

An early entrant to the digital banking space, Chime markets itself as a “wallet friendly” alternative to traditional banks, with no overdraft fees or minimum balance requirement. Today it reportedly has around 7 million users and makes its money primarily off the interchange fees merchants pay on card purchases.

Another splashy fintech debut expected in 2025 is Swedish buy now, pay later platform Klarna, which disclosed last month that it has filed confidentially for a U.S. IPO. If successful, a Klarna IPO could go a long way toward reinvigorating public investors’ appetites for new fintech offerings.

Other big names are also buzzing around as likely IPO candidates, including Stripe, a perennial favorite pick that has thus far remained private. Among neobanks, meanwhile, U.K.-based banking app Revolut is reportedly considering a U.S. offering. Additionally, Berlin-based digital bank N26 recently disclosed its first quarterly profit and revenue estimates, which is the kind of move startups make when on the IPO track.

Public markets seem favorable to fintech lately

Public markets also seem more receptive to fintech newcomers lately. In particular, several of the most prominent companies that went public during the 2020-2021 IPO and SPAC boom and saw shares tank in the subsequent correction have since recovered nicely.

Installment lender Affirm’s shares have increased several-fold since last year, with the company recently valued around $20 billion by market cap. Shares of consumer lender and financial services provider SoFi showed a similar surge, with the company recently valued around $17 billion.

Coinbase and Robinhood have also shot higher in recent months, buoyed by investor enthusiasm around crypto.

For the neobank space, bellwether Nubank, which trades as Nu Holdings, hit a high point in October. Shares have slid some since then, but the company still garners a hefty market cap of around $55 billion.

About time

Cycles turn, and for fintech and challenger banks, it looks like we’re entering a more bullish phase.

Of course, it’s not a given. This week’s market selloff following the Federal Reserve’s cautionary statements about future rate cuts, for instance, caused fintechs to erase some of their recent gains. We also haven’t seen a fintech unicorn hit U.S. public markets in recent quarters, so it’s unclear how receptive they will be.

Still, given that just a few years ago fintech was the reigning leader in startup funding, it seems not unreasonable for those who survived the crunch to enjoy some better times ahead.