Investment in financial technology companies around the world rocketed by 106% last year to $13.8 billion (£9.7 billion), according to a new report from KPMG and CB Insights.
The Pulse of Fintech report, published on Wednesday by consultants KPMG and venture capital information provider CB Insights, shows a huge surge of investment, topping multi-year highs.
The report says 2015 was a year of “mega rounds”, with over 60 rounds of $50 million (£35.2 million) or more invested last year alone, compared to just 15 between 2011 and 2013.
KPMG and CB Insights say 2015 was “the year that fintech entered the mainstream,” saying: “Almost every major process within banking and insurance is being targeted by fintech companies globally, either to disrupt the incumbents or, increasingly, to enable them to serve their customers better or reduce costs.”
However, drilling into the data, it looks like we may have passed a peak for investment in the sector, rather than seeing it continue to spike in 2016.
Deal activity fell in the final two quarters of the year, with a particularly steep drop-off in the final quarter of the year.
KPMG and CB Insights say:
As investors grew more cautious toward the end of 2015, total global VC investment dropped significantly — from $38.7 billion to $27.2 billion between Q3 and Q4. Fintech also experienced a similar decrease — from $4.7 billion to $1.7 billion over the same period. This drop was likely a reflection of growing caution across all areas of VC investment, rather than a concern with fintech in particular.
This matches up with what we’ve been hearing from a lot of investors, with some starting to worry about froth in the market and Alex McCracken, managing director of venture services at Silicon Valley Bank, saying we’ve reached the point in the market where it’s about backing the clear winners — hence the mega-rounds — rather than placing lots of little bets.
But KPMG and CB Insights add:
While caution is expected to continue to be a trend over the next few quarters, fintech interest is not likely to be held back for long. For the short-term, corporate investment in fintech will likely take center stage as corporates pursue longer term objectives associated with the perceived value that fintech can provide to their own organisations.
Spanish bank BBVA is the latest big corporate to get in on the fintech party, recently spinning out a $150 million (£105.5 million) fund to invest in fintech startups. Santander also has a $100 million (£70.3 million) fund and Citi has also been active in backing fintech businesses. KPMG and CB Insights say corporates have participated in at least 25% of funding deals for the last three quarters straight. Startup funding usually comes from tech venture capital funds, not banks.
The report shows Europe seriously lags the US and Asia when it comes to fintech funding, with just $1.5 billion (£1 billion) of the $13.8 billion total going to European-based businesses. The reports authors blame this on a lack of mega-rounds in Europe.
Within Europe, the UK is the clear leader when it comes to fintech funding. British fintech startups raised $962 million (£676.9 million) of the $1.5 billion total (trade body Innovate Finance puts the total at $901 million). London alone accounting for $743.7 million (£523.3 million) of that. Britain’s fintech VC total is a thumping 398% bigger than that of its nearest rival, Germany.
UK-based companies accounted for six of the 10 biggest fintech fundraises last year. They were:
- peer-to-peer lender RateSetter raising $29.6 million (£20.8 million);
- online-only bank Atom Bank raising $128 million (£90 million) across the year;
- online money transfer company TransferWise raising $58 million (£40.8 million);
- small business FX provider Ebury raising $83 million (£58.4 million);
- international money transfer startup WorldRemit raising $100 million (£70.3 million);
- and peer-to-peer business lender Funding Circle raising $150 million (£105.5 million).