The Pulse of Fintech Q2 2017 | KPMG | IE

The Pulse of Fintech Q2 2017

The Pulse of Fintech Q2 2017

The robustness of the European fintech market has been helped by the presence of an increasing number of fintech hubs, from London and Berlin to Paris and Dublin.

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The Pulse of Fintech Q2 2017

"With Brexit on the horizon, financial services companies are searching for alternative locations, with Ireland, Luxembourg and Germany high on the list. Fintechs haven’t yet made the switch, but we can expect to see them examining their options over the next six months”, Anna Scally, Partner, Head of Technology and Media and Fintech Leader at KPMG in Ireland.

Total global fintech investment more than doubled quarter over quarter in Q2’17 to US $8.4 billion, up from US$3.6 billion in Q1’17, according to the KPMG Pulse of Fintech report.*  In Europe, Fintech investment more than doubled in Q2’17 with over €2bn invested in the quarter.

Global M&A investment helped drive the fintech market rebound, with US$5.9 billion in deal value for M&A for the quarter. Comparatively, global VC funding to fintech companies declined slightly, with just over US$2.5 billion in VC funding raised by fintechs in the quarter.

In the Americas, a single deal – the buyout of Toronto-based DH – accounted for US$3.6 billion in deal value, contributing to more than half the total fintech funding during Q2’17. This deal aside, the US and Europe saw the vast majority of fintech investment, with each accounting for US$2 billion. Asia lagged significantly behind the other regions with US$760 million invested. A lack of significant megadeals in Asia likely kept investment relatively weak this quarter.

In Ireland, fintech start up Plynk turned heads this quarter with its Series A raising of $28.05 million from international investors, Swiss Privée - one of the largest Series A rounds in Irish history. “Fintech investment has made a comeback this quarter – a sign of renewed investor intent – particularly in the US and Europe,” adds Scally. 

According to Scally “Corporates are increasingly accounting for significant amounts of fintech investment – a trend that isn’t likely to let up given the need for financial institutions to digitise the customer experience, become more cost efficient, and find new sources of earnings growth.  A growing trend is for smaller, specialised B2C fintechs to form partnerships with other similar startups, allowing them to offer new options to consumers and compete on larger scale.”

 

The Impact of Brexit

Commenting on the impact of Brexit, Scally explains: “Also important to Dublin is the Brexit fintech opportunity.  As the prospect of a hard Brexit becomes more real, we’ve seen financial services companies authorized in London searching for alternative locations, and Ireland is high on that list.  While regulators are pushing major banks and insurers to come up with a Plan B, fintechs haven’t had to be as quick to make decisions.  But expect to see fintechs increasingly examining their options over the next six months.” 

 

Key Q2’17 Global highlights

  • Total fintech investment increased from US$3.6 billion in Q1’17 to US$8.4 billion in Q2’17.
  • VC funding remained solid globally with US$2.5 billion invested across 227 deals.
  • At mid-year, the global median VC fintech deal size of US$12 million for late-stage deals was substantially lower compared to the 2016 total of US$18 million. The median deal size was up for angel/seed stage deals (US$1.3 million) and for early-stage rounds (US$6.2 million).
  • Corporate VC investment in fintech is on pace to near 2015’s total, with US$2.6 billion invested in deals with corporate participation by the end of Q2’17, compared to US$9 billion in all of 2016, which was skewed by mega-deals. Corporate participation in fintech deals by volume is also up – with 21 percent participation in 2017 deals so far compared to 17 percent in 2016.
  • Investment in regtech was up significantly in Q2’17, with the US$591 million invested in the first half  of 2017 already exceeding the US$583 million raised during all of 2015, and on pace to significantly exceed 2016’s total by year end.
  • Business-to-business (B2B) fintech companies are getting a significant amount of attention, with three companies in the top10 global fintech deals this quarter: CCH Tagetik (US$321 million), Pos Portal (US$158 million) and ITRS Group (US$140 million).

 

European fintechs funding increases overall, but VC specific funding drop significantly

Europe saw US$2 billion in fintech investment during Q2’17, a significant four-quarter high although well below the peak investment high of US$5.8 billion seen in Q4’15. Deal volume in the region declined from 110 to 90 quarter over quarter, still relatively strong historically.

Median VC deal size in Europe continued to be significantly higher than 2016’s US$10.2 million, with a median of US$15.9 million at the late stage as of the end of Q2’17. Median VC deal sizes also remain higher relative to 2016 at the early stage (US$5.4 million) and angel/seed stage (US$1.2 million). 

The UK saw a major positive move one year following the Brexit referendum, with US$1.4 billion in total fintech funding in Q2’17, a six-quarter high, and over US$1 billion more than the Q1’17 tally.

 

Americas region posts strong fintech results for Q2’17, buoyed by single Canadian buyout and broad US investment

The Americas region led in fintech funding for the quarter, lifted by the US$3.6 billion buyout of Toronto-based payments company DH by US-based Vista Equity Partners. The deal is the largest takeover of a Canadian company by a foreign firm since 2014.

Excluding the DH deal, the US continued to lead the pace in the Americas. The US saw US$2 billion in fintech investment during Q2’17, including four of the top 10 fintech deals globally – AvidXchange (US$300 million), Bright Health (US$160 million, Pos Portal (US$158 million), Fast Match (US$153 million) and Addepar (US$140 million). Strong PE and VC investment helped drive the fintech funding increase in the US, with VC investment rising to over US$1.5 billion across 105 deals.


Asia funding holds steady amid continued absence of megadeals

Total fintech funding in Asia remained relatively steady quarter over quarter, with US$760 million invested across 51 deals during Q2’17, compared to US$790 million across 56 deals in Q1’17.  Asia’s Q2 fintech financing trends were characterized by geographic diversity and a lack of mega-financings.

China notched nine transaction (VC and M&A) for a total of $282 million in deal value, a slight uptick from the seven closed in Q1’17. Despite a decline in deal value, India recorded 17 deals and remains on pace to post an impressive year for fintech investment. 

Corporate participation continues to soar in the region, with CVC investment growing from a strong 22.5 percent in Q1’17 to a record high of 36.6 percent in Q2’17, revealing a deep interest in fintech innovation from strategic players in Asia.

“Fintech continues to evolve with many established fintechs looking to expand their product offering and their geographic reach,” said Brian Hughes, Co-Leader, KPMG Enterprise Innovative Startups Network, and National Co-Lead Partner, KPMG Venture Capital Practice, KPMG in the US. “In addition we are also seeing new fintechs moving beyond customer facing services to target mid and back office inefficiencies.” 

*Data for the Pulse of Fintech report provided by PitchBook.

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