UK fintech investment booms and Brexit opportunities | KPMG | UK

UK fintech investment booms and Brexit opportunities emerge

UK fintech investment booms and Brexit opportunities

The total value of investment into UK fintech reached $1.4bn in Q2’17, up from $0.1bn in the same period last year, according to the KPMG Pulse of Fintech

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The total value of investment into UK fintech reached $1.4bn in Q2’17, up from $0.1bn in the same period last year, according to the KPMG Pulse of Fintech*. This was in large part a result of MasterCard’s purchase of Vocalink which reinvigorated the previously subdued M&A market.

Looking ahead, the UK fintech market is set to remain buoyant as financial services providers face some significant challenges. The payments landscape is undergoing a wholesale restructure as a result of PSD2, and many firms are reassessing their business models as we prepare to exit the European Union.

Commenting, Murray Raisbeck, Global Head of Fintech says:
“Fintech investment has made a comeback this quarter particularly in the US and Europe. However, the outlook for the UK is especially exciting as we wait to see just how much innovation Brexit will drive. As banks, insurers and asset managers reassess their business models, they will need innovative tech solutions for everything from establishing a new office to engaging with staff and customers.”

Anna Scally, Partner and Fintech Leader, KPMG in Ireland adds:
“As a hard Brexit remains a possibility, many financial services companies licensed in London have started searching for possible alternative locations for operations, with Ireland, Luxembourg and Germany all high on the list. Yet, while regulators are pushing major banks and insurers to come up with a ‘Plan B’, fintechs haven’t been as quick off the mark. Expect to see fintechs increasingly focused on examining their options over the next 6 to 12 months.”


Notes to editors


Key Q2’17 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 top 10 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 five 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 9 transactions (VC and M&A) for a total of $282 million in deal value, a slight uptick from the 7 closed in Q1’17. Despite a decline in deal value, India recorded 19 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.”

VC investment into insurtech startups remains strong
After two moderate quarters, VC investment into insurtech startups was strong in Q2’17, with $745.4 million invested across 60 deals. Despite quarterly fluctuation in deal size and volume, the overall picture is one of increasing interest and investment in insurtech innovations.

Most deals have remained small, focused on seed and Series A rounds, though larger deals are expected in coming quarters as early-stage insurtechs mature. Investors are also looking beyond the healthcare-focused US market towards startups in Europe and Asia to diversify their geographical risk and earnings profile.

On a macro level, further fluctuations in total insurtech investment is likely in coming quarters, with the overall trend accelerating upward. Given the depth of possible disruption in the insurance industry and the breadth of the total market, insurtech should be a hot sector for years to come.

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

-ENDS-

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
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