Australian fintech investment in 2016 remained strong, despite a 47.2 percent global slide in fintech investment, according to KPMG International’s The Pulse of Fintech – a report on global fintech investment. After 2015’s record-setting US$46.7 billion in total global investment in fintech companies, the 2016 fintech funding total of $24.7B was still significant compared to pre-2015 investment levels.
In Australia, the total fintech investment of $656M across 25 deals in 2016 was a major increase on 2015 – which saw $185M across 23 deals. Venture capital investment in fintech also stayed at healthy levels, with $71M invested across 15 deals. This was a considerable drop on 2015’s $175M total, but within similar levels to 2014, when $88M was recorded against 17 deals.
The global drop was primarily due to reduced merger and acquisitions (M&A) and private equity (PE) fintech deals, which dropped considerably in 2016. Venture capital (VC) investment, however, reached a new high of US$13.6B compared to US$12.7B in 2015. Three Chinese mega-rounds buoyed global fintech funding significantly, led by the Q2’16 Ant Financial record-setting US$4.5B funding round.
“In just five years, Australia has seen the creation of a healthy and active fintech sector, from an extremely low base of just $51 million of fintech investment in 2012 to exceed $600m in 2016,” commented Ian Pollari, Global Co-Leader of Fintech, KPMG International and Head of Banking, KPMG Australia. “Similar to what we have seen globally in 2016, Australia’s performance was driven by some large deals, and specifically M&A and private equity transactions. Venture capital activity, while down nominally on last year’s figure, remains reasonably strong. While mega deals result in peaks and troughs in overall figures, the trend is clear and demonstrates increasing interest and investment activity in fintech.”
During 2016, there was a marked decline in fintech-related M&A activity around the world, from US$34B to US$11B. This decline is more attributable to 2014 and 2015 being incredibly strong years for fintech M&A activity rather than 2016 being an abnormally weak year. The 236 fintech M&A deals executed globally in 2016 came second only to the 313 deals that closed in 2015.
Global venture investment in bitcoin and blockchain technologies reached a high of US$543.6M in 2016, compared to US$441M in 2015; however, the deceleration in deal count of 132 versus 191 deals closed in 2015 likely signifies that some initial hype in blockchain is fading and greater evidence of robust applications will be required for future investment.
Insurtech is predicted to continue the strong growth witnessed in 2016 as the insurance industry plays catch-up with the innovations seen in the banking industry. Growing applications of innovative technologies like wearables, the Internet of Things and artificial intelligence to the insurance industry are also likely to spur further investment. There is also likely to be increasing participation of tech giants in the fintech sector. Already companies like China-based Alibaba Group are targeting promising fintech companies to expand globally (such as the MoneyGram acquisition announced last month), as well as creating more partnerships with established financial institutions in international locations to gain access to customers and knowledge of local markets.
“2017 is shaping up to be a pivotal year for fintech globally, with the momentum seen in areas such as Insurtech and blockchain translating into larger investments and funding rounds as they prove their commercial viability,” said Mr Pollari. “And while the frothiness seen in the market over the past 2 years dissipates, this will be positive for the sustainability of the market, with 2017 likely to see more transaction activity from corporate VCs and strategic investors seeking to capitalise on opportunities at more realistic valuations. Finally, an increasing number of exits will likely only stimulate demand for new investments and transaction activity.”
*Note: All figures cited are in USD; data for the report provided by PitchBook.
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