On November 16, 2016, KPMG, a global network of professional firms providing audit, tax and advisory services, and CB Insights released a financial report entitled “The Pulse of Fintech: A Global Analysis of Fintech Venture Funding.” Their report provides an excellent overview of what happened in Fintech investing worldwide for the 3rd Quarter of 2016 and makes predictions for Fintech in 2017.
According the report, the Fintech (Financial Technology) sector can be divided into 8 vertical markets. These include:
1. Equity crowdfunding: Platforms that allow a collection of individuals to provide monetary contributions for projects or companies in the form of equity, such as Jumpstart Micro.
2. InsurTech: Companies creating new underwriting, claims, distribution and brokerage platforms, enhanced customer experience offerings and software-as-a-service to help insurers deal with legacy IT issues.
3. Lending tech: Primarily peer-to-peer lending platforms, as well as underwriter and lending platforms using machine learning technologies and algorithms to assess creditworthiness.
4. Payments and billing tech: Payments and billing tech companies span from solutions to facilitate payments processing to payment card developers to subscription billing software tools.
5. Personal finance and wealth management: Tech companies that help individuals manage their personal bills, accounts and/or credit as well as manage their personal assets and investments.
6. Money transfer and remittance: Money transfer companies include primarily peer-to-peer platforms to transfer money between individuals across countries.
7. Institutional and capital markets tech: Companies either providing tools to financial institutions such as banks, hedge funds, mutual funds or other institutional investors. These range from alternative trading systems to financial modeling and analysis software.
8. Blockchain and bitcoin: Companies here span key software or technology firms in the distributed ledger space, ranging from bitcoin wallets to security providers to sidechains.
KPMG reports the number of investment deals in the Fintech industry in the 3rd Quarter of 2016:
– Globally, there were 178 deals, representing $2.4B in funding
– This breaks down to 96 deals in North America for $0.9B in funding; 38 deals in Europe for $0.2B in funding; and 35 deals in Asia for $1.2B in funding.
Overall, KPMG concludes that “while VC-specific funding in isn’t expected to exceed 2015’s peak investment levels, total funding to fintech companies is on track to exceed 2015 totals. The future of fintech remains positive from an investment perspective, with an uptick expected in 2017, if not in Q4’16. Investors are expected to become more confident as the immediate ramifications associated with Brexit ease and uncertainties in the U.S., especially with regards to the election, stabilize.
Specific Fintech Observations for 2017
Here is a sampling of some of the most significant predictions KPMG makes for the future of Fintech investing:
– “As in past quarters, payments and lending remain the leading fintech subsectors across the globe and continue to earn considerable VC attention despite signs of market saturation in some subsectors. Other areas, including RegTech, blockchain, data and analytics and InsurTech are on the rise.”
– “There is a lot of liquidity in the market as well as a continued demand for fintech innovation by the large financial institutions. As such, these financial institutions will continue to look for ways to embrace the promise of these innovations through a number of different avenues, including partnerships, direct investment and merger and acquisition transactions.”
– Technology doesn’t respect national boundaries or national differences in regulations. The only boundary that technology respects is consumer adoption.”
– “While InsurTech continues to be a big bet, there is also excitement building around areas like blockchain, robo advisory and artificial intelligence. As scrutiny around privacy and data security rises in North America, interest in security and biometrics technologies may also grow.”
– “There are definite headwinds to be overcome in certain fintech verticals, such as payments and marketplace lending. However, the continued positive momentum in other areas, such as blockchain and robo advisory, coupled with the ever-increasing consumer demand for alternatives to traditional financial services, should make fintech the most dynamic sector for venture investing in 2017.”
Earlier this year, a similar study by Accenture, a leading global professional services company providing a broad range of services and solutions in strategy, consulting, digital, technology and operations, concludes much the same.
Accenture called what’s happening in the Fintech sector a “Fourth Industrial Revolution, a global phenomenon in which “new innovation and digital companies (will) compete and collaborate with traditional financial services.” They found that global Fintech investment grew 75 percent in 2015, exceeding 22 billion dollars.
Highlights of Similar Accenture Fintech Study are as follows:
– “Global investment in financial technology (fintech) ventures in the first quarter of 2016 reached $5.3 billion, a 67 percent increase over the same period last year, and the percentage of investments going to fintech companies in Europe and Asia-Pacific nearly doubled to 62 percent.
– “The drive for fintech innovation is spreading well beyond traditional tech hubs. New frontiers like robotics, blockchain and the Internet of Things are bound less by geography than by the industry’s ability to adopt and scale clever ideas that improve service and efficiencies.”
– “Collaborative fintech ventures – those primarily targeting financial institutions as customers – are gaining ground over so-called ‘disruptive’ players that enter the market to compete against those institutions. The percentage of funding for collaborative fintech ventures in North America rose dramatically from 2010 to 2015, from 40 percent to 60 percent.”
– “While a growing proportion of collaborative fintech ventures have emerged, the report cites relatively low participation in venture-investing by the banks themselves, which in 2015 invested $5 billion of the $22.3 billion of reported investments.”
– The number of ‘big ticket’ deals in the global fintech sector is growing. In 2015, there were 94 fintech deals larger than $50 million, compared to 52 in 2014 and just 15 in 2013.
Based on the research, Fintech companies, such as Jumpstart Micro, are positioned well for growth as investors and consumers rush to take advantage of the convenience and innovation that technology can offer within the business finance and personal finance arenas.