Dive Brief:

• The U.S. was the geographic leader in both payments venture funding rounds and dollars raised during the third quarter, according to a report released Wednesday by research firm CB Insights. Payments startups in the U.S. tallied $800 million in funding across 33 deals, according to the report.
• U.S.-based startups were responsible for seven of the top 10 payments fundraising rounds in that quarter, with expense management startup Ramp grabbing the No. 1 spot, raising $300 million in August.
• Still, the numbers reflected the persistently depressed venture capital environment: Funding for payments startups worldwide dropped 39% in the third quarter, compared to the second quarter, amounting to just $1.1 billion, CB Insights said. The number of funding rounds tanked 52%, compared to the second quarter, to just 73, the research firm said.

Dive Insight:

For the first time in four quarters, the payments category didn’t lead the fintech pack when it came to money raised by startups during the third quarter. 

Globally, digital lending garnered the most venture funding in Q3, at $1.7 billion. Payments tied insurtech for second, with each of them tallying $1.1 billion during the third quarter. Besides those subcategories, the fintech group that CB Insights tracks also includes banking, wealth tech and capital markets tech.

During a quiet quarter for payments funding, the U.S. notched its biggest payments funding round share in more than four years, at 45%. Asia and Europe were responsible for 21% and 15%, respectively, CB Insights said. 

Europe took second place behind the U.S. in funding totals, with $200 million raised across 11 deals. Meanwhile, Asia notched second place in funding rounds, with 15 and a lesser $67 million raised.

Besides Ramp, other U.S.-based companies that snagged investments during the third quarter were fintech PayJoy, business-to-business fintech Tradeshift and B2B payments company Slope, all based in San Francisco. Pasadena, California-based healthcare payments startup Collectly and Atlanta-based healthcare paytech Rialtic also landed investments.

One bright spot: Average payments category deal size thus far for 2023 is $33.4 million, compared to $24 million for all of last year, according to the report.

In payments, early-stage funding rounds have dominated thus far this year, making up 71% of funding rounds this year, compared to 68% in 2022 and 61% in 2021, CB Insights said.

Across the venture capital landscape, insider-led funding rounds thus far this year have nearly reached 2013’s high, according to an Oct. 13 web post from research firm Pitchbook. That refers to funding rounds led by current investors, rather than new ones.

Payments mergers and acquisitions activity edged up in the third quarter, with 14 deals tallied, compared to 12 in the second quarter and 10 in the first quarter, according to CB Insights, which also counted two initial public offerings for payments startups in the third quarter. 

U.S.-based fintech companies collected nearly half (47%) of all fintech funding during the quarter, CB Insights said. Still, U.S. fintech funding slipped 5% compared to the previous quarter, to $3.5 billion, and funding rounds dipped 6%, to 310.

That’s a far cry from 592 funding rounds that drew $15.6 billion in the third quarter of 2021 when venture capital flowed more freely, handing payments and fintech startups sky-high funding rounds and valuations.

In a separate Monday report on investors’ health, Pitchbook said venture capital firms are on track to end the year with $57 billion, a 67% drop from 2022.