Global fintech investment flattens out, says KPMG

Risk-averse investors tack towards proven business models and technologies, but certain niche areas are still gaining ground

Worldwide investment in the fintech sector has plateaued over the first half of the year, with sizeable company valuations and a shortfall of successful IPO exits forcing backers to focus on a smaller number of firms with proven business models.

According to the latest Pulse of Fintech report, produced by KPMG in partnership with CB Insights, caution has set in even as the definition of fintech continues to shift, with new companies in the segment targeting their technology offerings at specific niches.

In broad terms, the report notes, total fintech funding – including activity by angels, private equity firms, mutual funds and hedge funds – reached 374 deals in Q2 2016, worth $9.4bn: a value driven primarily by the blockbusting $4.5bn Ant Financial deal in China.

Corporate participation in those deals rose to almost a third (32%): a five-quarter high that far surpassed the 23% recorded for the second quarter last year.

However, after rebounding in Q1 of this year, venture-capital deal activity in the segment plummeted by 12% in Q2 – down 11% on the same period of 2015.

Also, while fintech deals in Asia and Europe were just about level compared with the first quarter, activity in North America dropped by more than 26%.

Despite investors’ inclination towards proven technologies, niche areas that are beginning to gain traction with more adventurous backers, include blockchain-based solutions, insurtech firms and robo-advisory platforms.

In particular, the report says, blockchain firm Circle Internet managed to raise $60m, which will be used mainly to fund its expansion into China.

One particularly interesting trend that the report picks up on is that traditional corporates are increasingly shifting their attention to co-creation opportunities in the fintech world.

It notes: “A number of larger corporates have invested in internal innovation labs or garages in order to bring together fintech companies to help them respond to challenges and test technologies – even while providing participating fintechs with the support they need to grow.”

In Europe, Germany has overtaken the UK as the continent’s leading hub of fintech investment, with the success of the Leave vote in the EU referendum having a particularly strong influence on that trend.

The report points out that while total UK deal value dropped by only $14m in the period, settling at $103m, “many investors were anxious regarding Brexit’s implications”, and a number of deals were delayed.

However, according to KPMG head of UK tech growth Patrick Imbach, Britain may yet take the initiative in the long term. “Without any doubt,” he says in the report, “there are uncertainties around Brexit – but with uncertainty comes opportunity.

“Free from EU rules, it is in the UK’s power to establish its own regulatory framework designed to support and encourage the growth of fintech companies and further cement London’s role as a global fintech hub.”

Read the full report here.

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