What a Fintech Rebound Means for Banks
May 20, 2025
By: Kate Drew
Quarterly fintech funding increased in Q1 2025, rising 18% from the prior quarter, and surpassing $10 billion for the first time in 2 years, according to CB Insights. (Total funding included a $2 billion investment in crypto exchange Binance.) The data suggests appetite for fintech may be on the rebound after a tough few years, but the specifics of the quarter demonstrate nuance and particular pockets of potential success. Here are a few points from the report that should be of interest to financial institutions (FIs):
1. AI companies made up 16% of all fintech deals in the quarter. That’s more than doubled since the launch of ChatGPT in November 2022. Additionally, AI companies took 17% of all funding. This should be more promising for FIs than worrisome, as many of these companies are building tools aimed to help traditional organizations. For example, Instabase, which raised $100 million in a Series D round in the quarter, offers an AI-powered unstructured data management platform to companies across sectors, including financial services.
2. Three out of the 10 biggest deals were for crypto or blockchain companies. This may be surprising to a lot of FIs, as digital assets largely fell out of favor with the banking community in the last few years. You might even say the sector became taboo, especially in the wake of high-profile, crypto-related bank collapses. But, with an administration that is vocally supportive of the space in the US, and the fintech industry clearly forging ahead on this front globally, it may be wise for FIs to reconsider the implications of this market.
3. Digital banking fintechs are demonstrating health and growth potential. This one should be top of mind for executives reading this analysis. According to the report, while digital banking companies are not driving investor activity — in fact, funding and deals were both down in Q1 — they have the highest average CB Insights Mosaic score among major fintech verticals, which, according to the company, measures business health and growth potential. This, combined with Chime’s recent IPO filing, should remind FIs that the neobank threat is still very real.
Fintechs had a good quarter overall, and we expect to continue to see signs of a rebound in the year ahead, if broader economic conditions can support it. What does that mean for the country’s banks and credit unions? Really, it means if you’re waiting on the sidelines at all, it is time to get on the court. It’s time to reembrace innovation and planning for the future. Whether it’s scary or not, the future of banking isn’t going to wait.
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