Amid a tougher climate for marketplace lenders and a drop in mega-round activity, investment to VC-backed fintech startups fell 49% according to the Pulse of Fintech, the quarterly global report on fintech VC trends published jointly by KPMG International and CB Insights. Despite this decline, VC investment in fintech is on pace to exceed 2015 results.
According to the new report, overall global investment in fintech companies across both venture-backed and non-venture-backed companies totaled US$9.4 billion in Q2’16, buoyed by Ant Financial’s US$4.5B financing. Q2’16 saw VC-backed fintech companies raise US$2.5B across 195 deals, a 12% drop in deal volume compared to Q1’16.
“Despite VC backed funding to fintech decreasing in Q2, overall fintech funding remains on track to surpass 2015 levels”, says Ian Pollari, Global Co-Leader of Fintech, KPMG International. “Traditional financial institutions and banks of all sizes are realizing that the opportunities associated with fintech aren’t about who has the deepest pockets – and so they’re intensifying their innovation efforts.”
Anand Sanwal, CEO of CB Insights, added: “The decline in fintech financing and deals is in line with what we’re seeing in the broader venture environment for startups, as VCs as well as crossover investors are pushing back harder on profitability and business model concerns. Despite the funding drop, previously under-invested areas of fintech such as an insurance area are gaining strong momentum among venture investors across geographies.”
Key highlights from the Pulse of Fintech:
North America sees fintech funding, deals dip in Q2’16
North America saw both fintech funding and deals fall on a quarter-over-quarter basis, as VC-backed startups raised US$1.3B across 97 deals, a drop of 25% in the number of deals compared to Q1’16.
Q2’16 funding to VC-backed fintech companies in North America fell 28% on a quarter- over- quarter basis and 48% compared to the same quarter last year.
Asia fintech deals hit five-quarter high; funding returns to earth
Asia saw VC-backed fintech companies raise US$0.8B across 46 deals in Q2’16 – a funding decline of 71% from Q1’16 primarily due to the lack of major mega-rounds. Q1’16 included two US$1B+ mega-rounds in China. Deal activity to VC-backed fintech companies in Asia reached a 5-quarter high in Q2’16 with 46 deals recorded.
India market continues to see action
Neha Punater, Partner and Head of Fintech, KPMG in India said “VC investment in fintech remains strong in India. While the total dollar value of investment has declined due to absence of mega-rounds this year, the number of deals remains consistent with 2015 levels. We continue to see investment in key areas such as payments and mobile wallet as well as increased momentum in emerging areas like robo advisory.” Lending companies in the SME and P2P space attracted investments this quarter with Bengaluru and Mumbai bagging the top deals.
Europe fintech funding rises slightly
Europe saw VC-backed fintech funding lift to a three-quarter high in Q2’16, rising 22% on a quarter- over -quarter basis to hit US$369M across 43 deals. As the UK continues to deal with the ramifications of Brexit, Q2’16 saw Germany outpace the UK for VC-backed fintech funding by 80%.
The rise of InsurTech
InsurTech is coming into its own as an area of fintech for venture capital investment, hitting US$1B across 47 deals in the first half of 2016. Health insurance-related startups claimed the three largest deals of 2016 YTD, but startups across P&C and life insurance are also seeing an increasing amount of investment.
Banks continue to stay active in fintech investing
Over the last five quarters, Goldman Sachs, Citigroup and Banco Santander or their venture arms (excludes independent VC firms associated with these banks) have invested in 25 VC-backed fintech companies. Other banks making investments globally across the fintech landscape include HSBC, JPMorgan Chase, and Mitsubishi UFJ Financial Group.
Brian Hughes, Co-Leader, KPMG Enterprise Innovative Startups Network and Partner, KPMG in the US said: “We are seeing more partnering by traditional financial services companies with fintechs to help develop new business models, while also enabling fintechs to expand their customer base and get the support they need to become sustainable. Although the overall VC investment in fintech is very positive, with InsurTech and Blockchain standing out as areas that continue to attract greater investment, the past quarter reflected a more cautious environment.”
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