KPMG and CB Insights release their latest quarterly fintech venture capital (VC) report, highlighting a drop in both deals and dollars during the second quarter of 2016.
Amid a tougher climate for marketplace lenders and a drop in mega-round activity, investment to VC-backed fintech startups fell 49 percent according to The Pulse of Fintech, the quarterly global report on fintech VC trends published jointly by KPMG International and CB Insights. Despite this decline, VC investment in fintech is on pace to exceed 2015 results.
According to the new report, overall global investment in fintech companies across both venture-backed and non-venture-backed companies totaled US$9.4 billion in Q2’16, buoyed by Ant Financial’s US$4.5 billion financing. Q2’16 saw VC-backed fintech companies raise US$2.5 billion across 195 deals, a 12 percent drop in deal volume compared to Q1’16.
KPMG International and CB Insights will discuss The Pulse of Fintech, investment trends and key players in fintech on a live webinar on 1 September 2016 at 11:00am EDT. Register here.
“Despite VC backed funding to fintech decreasing in Q2, overall fintech funding remains on track to surpass 2015 levels”, says Ian Pollari, Global Co-Leader of Fintech, KPMG International. “Traditional financial institutions and banks of all sizes are realizing that the opportunities associated with fintech aren’t about who has the deepest pockets – and so they’re intensifying their innovation efforts.”
Anand Sanwal, CEO of CB Insights, added: “The decline in fintech financing and deals is in line with what we’re seeing in the broader venture environment for startups, as VCs as well as crossover investors are pushing back harder on profitability and business model concerns. Despite the funding drop, previously under-invested areas of fintech such as an insurance area are gaining strong momentum among venture investors across geographies.”
North America saw both fintech funding and deals fall on a quarter-over-quarter basis, as VC-backed startups raised US$1.3 billion across 97 deals, a drop of 25 percent in the number of deals compared to Q1’16.
Q2’16 funding to VC-backed fintech companies in North America fell 28 percent on a quarter- over- quarter basis and 48 percent compared to the same quarter last year.
Asia saw VC-backed fintech companies raise US$0.8 billion across 46 deals in Q2’16 – a funding decline of 71 percent from Q1’16 primarily due to the lack of major mega-rounds. Q1’16 included two US$1 billion+ mega-rounds in China. Deal activity to VC-backed fintech companies in Asia reached a five-quarter high in Q2’16 with 46 deals recorded.
Europe saw VC-backed fintech funding lift to a three-quarter high in Q2’16, rising 22 percent on a quarter- over -quarter basis to hit US$369 million across 43 deals. As the UK continues to deal with the ramifications of Brexit, Q2’16 saw Germany outpace the UK for VC-backed fintech funding by 80 percent.
InsurTech is coming into its own as an area of fintech for venture capital investment, hitting US$1 billion across 47 deals in the first half of 2016. Health insurance-related startups claimed the three largest deals of 2016 YTD, but startups across P&C and life insurance are also seeing an increasing amount of investment.
Over the last five quarters, Goldman Sachs, Citigroup and Banco Santander or their venture arms (excludes independent VC firms associated with these banks) have invested in 25 VC-backed fintech companies. Other banks making investments globally across the fintech landscape include HSBC, JPMorgan Chase, and Mitsubishi UFJ Financial Group.
Brian Hughes, Co-Leader, KPMG Enterprise Innovative Startups Network and Partner, KPMG in the US said: "We are seeing more partnering by traditional financial services companies with fintechs to help develop new business models, while also enabling fintechs to expand their customer base and get the support they need to become sustainable. Although the overall VC investment in fintech is very positive, with InsurTech and Blockchain standing out as areas that continue to attract greater investment, the past quarter reflected a more cautious environment.”
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KPMG’s Financial Services practice has launched the global fintech practice in order to leverage international investment activity and capability development in fintech across KPMG member firms. Warren Mead and Ian Pollari, partners with KPMG in the UK and KPMG in Australia respectively, have been appointed as global co-leads of the practice, along with a leadership team including partners from countries including the U.S., U.K., Israel, China & Hong Kong, India and Australia.
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The views and opinions expressed herein are the personal opinions of the interviewees and authors based on their personal experience working as Auditors in the industry and do not necessarily represent the views or opinions of KPMG International or any KPMG member firm.