The Pulse of Fintech | KPMG | AU

The Pulse of Fintech

The Pulse of Fintech

Quarterly analysis of global venture capital trends in the fintech sector.

Quarterly analysis of global venture capital trends in the fintech sector.

Given the strong interest in fintech globally, each quarter, KPMG brings you the ‘Pulse of Fintech’ report which highlights closed deals, issues and challenges from around the world, in addition to key trends and insights related to key regions: North America, Europe and Asia, as well as coverage of the Australian market. Recognising the growth of the fintech sector, the report covers research of all investment classes – M&A, including Private Equity (PE), as well as Venture Capital (VC) investments. All figures reported are in US$.

Highlights from the Q3’17 report

  • Investment remained strong this quarter: Global fintech investment was US$8.2 billion in Q3’17, after more than doubling to $9.3 billion in Q2. Although deal volume declined, the $8.2 billion of investment stood well above the $6.3 billion raised in Q3’16.
  • VC funding saw a five quarter high: VC funding increased to $3.3 billion invested across 211 deals, up from $3.01 billion in Q2. Although the total was well shy of the record $7.4 billion raised in Q3’15.
  • US angel and seed financings plateau: The median deal size for angel/seed stage deals at the end of Q3’17 stood at $1.4 million – up from $1 million in 2016, while the median deal size for early stage rounds was also up to $5.5 million from $5.1 million in 2016. The median deal size of late stage deals was even year over year at $16 million.
  • Despite a dip in Q3, the role of corporate VCs remains significant: While overall corporate VC funding has declined so far this year, the participation rate remains high. Corporates have participated in 18 percent of all fintech VC deals globally (YTD).
  • Median deal size of early-stage deals grows: Fintech venture-backed exit activity skyrocketed in Q3’17, almost tripling quarter over quarter from $270 million to $940 million. This reflects the second-best quarter on record for fintech exits.
  • Total deal value for Asia strengthens: In Q3’17, fintech investment in Asia exceeded $1 billion, despite a drop-off in the number of fintech deals. VC investment was particularly strong, reaching a four-quarter high of $1.06 billion.
  • After an upsurge, Australian fintech had a quieter quarter: In the wake of Rubik Financial’s transaction in Q2’17, deal value especially took a hit. Investment declined to $4.8 million over 5 deals in Q3’17 from $115 million in Q2’17.

Trends to watch globally

  • Globally, fintech is expected to continue to grow, diversify and also consolidate in some mature sectors (e.g. lending, payments) over the coming quarters. Artificial intelligence, insurtech, regtech and blockchain remain hot areas of fintech investment, while the rapidly approaching implementation deadline for PSD2 in Europe and Open Banking in the UK is expected to put an increasing focus on open banking.
  • Over time, the importance of Asia-based fintech centres, such as Singapore’s insurtech innovation hub, is also expected to grow, particularly in the eyes of corporates. As a result, it would not be surprising to see more companies from North America, UK and Europe making investments in the region in order to gain more visibility and access to such innovations.
  • Regulators globally have increased their focus on digital banking and on finding ways to encourage innovation and competition. For example, international regulators are streamlining their bank charter/licensing authorisation approaches (e.g. US, Australia) to make it easier for fintechs to start banking operations.

We examine these trends and other issues in this quarter’s report, in addition to discussing a number of key questions driving investor interest in the fintech market, including:

  • What will the next evolution of the fintech market look like?
  • Are Asia-based fintech hubs set to become the base for fintech’s future?
  • Is blockchain truly on the cusp of becoming production-capable?
  • How is insurtech investor interest evolving?

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