Global fintech investment surged to US$57.9 billion in the first half of 2018, buoyed by nine mega deals worth more than US$1 billion each, according to KPMG’s latest fintech report.
This was a massive jump from the US$22 billion invested in the second half of 2017 and much higher than the US$38.1 billion invested for the whole of that year.
The growth comes just as the world’s incumbent banks have swiftly moved to thwart an emerging threat from fintechs by expanding their digital banking initiatives.
JP Morgan recently announced the success of a digital bank pilot project and its intent to roll out the digital bank option nationally. Citibank also announced a digital-only bank.
"Prompted by advent of open banking/PSD2 regimes, regtech, AI and digital bank initiatives, we will see more of this occurring," said Ian Pollari, Global Co-Lead, KPMG Fintech.
Pollari pointed out that Goldman Sachs developed and launched a new, standalone fintech business, Marcus 18 months ago. Marcus, itself acquired a fintech personal financial management app provider, Clarity Money, recently.
"Here you have an incumbent financial services firm moving into a new segment (consumer finance through Marcus) and enhancing capability (through a PFM app it has acquired)."
Highlights of the first half fintech report included the successful closing of two massive deals: the record-setting US$14 billion raise by Ant Financial and Vantiv’s US$12.9 billion acquisition of WorldPay.
“Large deals at all stages powered fintech investment in the first half of 2018,” Pollari noted.
“But just as notable is the breadth of investment. We’re seeing a mix of fintech sub-sectors drawing increasing interest, including data, AI and regtech — these horizontal capabilities have appeal across the full spectrum of the financial services industry.”
Pollari noted the growth of merger and M&A activity is also growing as more mature start-ups seek exits.
According to the financial adviser, the outlook for fintech investment remains positive.
"With a significant amount of capital waiting to be deployed, a growing diversity of fintechs hubs across the globe, and more corporates looking to seize on larger M&A opportunities, investment in fintech is expected to remain strong heading into the second half of 2018," said Pollari.
“Not only are we going to see more investments in individual technologies like AI and emerging sub-sectors like regtech, we will also see efforts to combine fintech capabilities and to embed them within broader service offerings, through different commercial structures, particularly in areas such as open banking and digital mortgages."
KPMG said that blockchain tech is “moving beyond experimentation” to draw “significant” attention from investors in the first two quarters of 2018, noting that investments were typically more focused on experienced firms and consortia that sought additional rounds of funding, rather than on market entrants.
The financial consultant said ongoing the changes associated with open banking in markets such as the UK, Mexico and Australia will likely continue to buoy investment – especially in regtech - over the remainder of the year and into 2019.
US, Europe and Asia
Looking at the individual markets, investment in US fintech companies rose to US$14.2 billion during the first half of 2018, as money flowed into newer areas such as regtech and block chain, as well as into late stage companies,” KPMG said.
The first half figures compare to the US$12.2 billion invested during the second half of 2017, which included more than ten US$100 million plus mega rounds, including insurtechs Oscar and Lemonade, and block chain-based consortia company R3.
Europe saw investment in fintech companies hit US$26 billion in the 2018 first half fueled by substantial deals by WorldPay, Nets, iZettle and IRIS software – which together accounted for US$22.4 billion of the European total.
“The UK led the way in European fintech investment, with US$16.1 billion and five of the top 10 deals in the region, despite possible concerns around Brexit negotiations.”
Asian fintech investment hit US$16.8 billion powered by a massive US$14 billion Ant Financial deal.
Excluding this mega-deal, Asia still saw strong fintech investment, including quarter-over-quarter increases in overall investment in India, Australia, and Singapore.
Investment in Australia’s fintech sector was US$63.7 million in the first half of 2018, up from US$56.1 million in the latter half of 2017.
However, the figure is down on the highs recorded in the second half of 2015 and the first half of 2016, according to KPMG.
KPMG said significant outliers still dominate the Australian fintech ecosystem, propelling the majority of this growth, such as the Rubik Financial deal in the past and, most recently, the acquisition of financial data analytics provider Hometrack Australia for roughly US$97 million by REA Group.