THE PULSE OF FINTECH

KPMG International and CB Insights collaborated to produce an in depth report on the key trends, opportunities and challenges currently relating to fintech in Asia, North America and Europe. The report covers essential topics including the areas gaining most momentum globally and recently regulatory framework developments.

Global Analysis of Fintech Venture Funding

According to the report, in the second quarter of 2016, there was a dramatic shift in funding to VC-backed fintech companies. A reduction in financing activity – most notably from angel investors –  saw overall funding fall by 49 percent. However, commentators have suggested the plunge is due to global market conditions, rather than as result of negative sentiment towards the fintech industry. With concerns surrounding Brexit, the upcoming US presidential election and valuations, VC investors can be forgiven for taking a slight pause. Thus, in spite of the Q2 decline, ‘investment into VC-backed fintech companies is on pace to exceed 2015 levels’ (KMPG 2016, p. 9).

Various subsectors of fintech – including robo-advice – are expected by the authors to receive rising investment interest over the next couple of quarters. Fintech start-ups concerned with InsurTech and blockchain technologies have also received a substantial amount of attention from investors, accounting for a large portion of funding rounds in Q2’2016. Notably, InsurTech and blockchain providers have garnered significant interest from traditional, established competitors – including banks – who are looking to leverage these technologies to improve their existing services.

Furthermore, a welcome shift in the perception of fintech companies from ‘disruptors and competitors’ to ‘partners and enablers’ is slowly occurring amongst established corporations, who have been increasingly concerned with ascertaining potential methods to integrate fintech with traditional business models (KPMG 2016, p. 2). This is reflected in the rising involvement of corporations in VC-backed fintech deals in Q2’2016, with corporation-participation reaching a five quarter high of 32 percent. This new emphasis on ‘co-creation’ has seen said corporations investing in ‘internal innovation labs or innovation garages’ (KPMG 2016, p. 10) to help foster the growth of new and emerging fintechs.

The report states that although North America still remains the global leader in fintech funding (with the levels of funding reaching $1.3bn in Q2’2016, compromising over half of global fintech backing), activity overall declined for Q2’2016. However, funding activity slightly increased in Europe for Q2’2016, due to rising interest amongst German investors. Although VC-backed fintech financing also fell in Q2’2016 for Asia, the historical $4.5bn private sector technology funding for Ant Financial reflects the increasing importance of fintech in the region. However, ultimately, VC-backed fintech funding is set to increase for the next two quarters of 2016, and will surpass funding levels seen in 2015.

Read the report in full here.