UK fintechs shrug off Brexit fears

UK fintechs shrug off Brexit fears

UK fintech investment bounces back in the first quarter of 2017. Increasing VC investment in fintech between UK and mainland Europe. UK fintech enjoys greater VC investment from the US in Q1’17 than in the whole of 2016. Challenger banks play a significant role in attracting funds to UK fintech

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UK fintechs attracted a total of $226m in venture capital (VC) funding in Q1 2017 – up 28% from $178m in Q4 2016 and marginally above Q1 2016 ($223m), according to the latest Pulse of Fintech report by KPMG. This is against a backdrop of a global slowdown.

Fintechs on both sides of the channel shrugged off Brexit uncertainties as the flow of venture capital between the UK and mainland Europe surged to a two-year high. Mainland Europe provided $212m* to UK fintechs in the first quarter, the highest sum since Q3 2015. Meanwhile UK investors participated in $428m of VC financing of startups in continental Europe, by far the largest number since 2014.

UK fintechs also appear to be firmly back on the US’ radar this quarter with US VCs supporting them to the tune of $192m*. This exceeds the total amount invested throughout the whole of last year ($128m).   

Patrick Imbach, Co-Head of KPMG’s Tech Growth practice, said:

“It’s clear that any uncertainty around the impact of Brexit seen in 2016 has, for now at least, dissipated. It’s especially promising to see such a healthy level of mutual interest between the UK and Europe in light of the hectic political agendas on both sides of the channel. Global investors may see value here given the depreciation of the pound, or they may simply be reassured by the level of innovation and regulatory support for start-ups happening in the UK. Regardless of the cause, the start of 2017 holds promise for UK fintech.”

The UK remains the dominant fintech force in Europe, accounting for half of the top ten investments. London-based Currency Cloud attracted Google Venture’s first investment in the European fintech market to the tune of $25m. The start of 2017 also saw a number of significant fundraises for challenger banks, including a $103m round by Atom Bank and $28m raised by Monzo. This continues an 18-month trend that has seen the UK give rise to more challenger banks when compared to most other regions.

Richard Iferenta, Head of Challenger Banking, KPMG UK added:

“The regulator and the Government in the UK are doing a lot of work to ensure the UK’s banking scene is a competitive one and technology plays a crucial role in that. As we enter the new world of open banking and PSD2, there will be huge demand for innovative banking solutions so I have no doubt that those UK growth banks able to demonstrate value will remain attractive to global investors.” 

 

ENDS

Notes to editor:

For further information please contact:

Christina Bridge, KPMG UK:

E: Christina.Bridge@KPMG.co.uk
T  +44 (0) 207 311 4252
M: +44 (0) 778 950 4905

KPMG Press office

Tel:  +44 (0) 207 694 8773

 

Key Q1 2017 global highlights        

  • Global fintech investment decreased from $4.2bn in Q4’16 to $3.2bn in Q4’17.
  • VC funding remained solid with $2.3bn invested across 203 deals.
  • Global median VC deal size for late stage deals dropped substantially in Q1’17 – to $10m compared to the 2016 average of $15m.   
  • Corporate VC investment remained high, with $1.2bn in deals funding during Q1’17, although participation by corporates dropped slightly to 19.3 percent compared to a high of 20.5 percent in Q4’16.
  • Investment in regtech continued its growth trajectory with $219m across 26 deals in Q1’17.         
  • Q1’17 insurtech activity remained on par with 2016 averages at 46 deals and $243m invested.

Slow start to year in Americas, but US continues to drive global fintech investment

Fintech funding got off to a slow start in the Americas, with $1.8bn invested, well under last year’s pace of investment. The US dominated fintech funding in the region, accounting for $1.5bn.  However fintech M&A in the US dropped to just $247m. The number of US late stage deals more than doubled quarter over quarter, from 12 in Q4’16 to 25 in Q1’17.

Funding to Asia fintechs declines but corporate participation reaches new high

Total fintech funding in Asia dropped in Q1’17 to $492m invested across 32 deals, reflecting a major drop off of investment in China in addition to a dearth of $100m+ megarounds. Venture capital funding dropped from $690m in Q4’16 to just $406m in Q1’17. Corporates remained more resilient, with participation in Asia-based fintech deals climbing to over 30 percent.

Increasing breadth of fintech applications

“Payments and lending continue to attract the most funding globally, although we’re seeing increasing interest in a variety of technologies,” 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 to continued interest in regtech and insurtech, new areas such as artificial intelligence and machine learning are gaining increasing investor attention.”

Data for the Pulse of Fintech report provided by PitchBook.

*These figures refer to all funding rounds of UK fintech companies that all had at least one investor based in the specified region.   

Find The Pulse of Fintech -Q1 2017 here: https://home.kpmg.com/xx/en/home/insights/2017/04/the-pulse-of-fintech-q1-2017.html

 

About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 13,500 partners and staff.  The UK firm recorded a revenue of £2.07 billion in the year ended 30 September 2016. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 189,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such. 

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