Global VC-Backed Fintech Funding Declines in Q3’16, But Asia Investment Reaches New High : Report

After quarterly fintech investment to VC-backed companies peaked as high as US$5B+ in 2015, investors continue to take a much more cautious approach to fintech investments this year. Fintech funding fell 17 percent in Q3’16, according to the Pulse of Fintech, the quarterly report on global fintech VC trends published jointly by KPMG International and CB Insights.

According to the new report, overall global investment in fintech companies across both venture-backed and non-venture-backed companies totaled US$2.9 billion in Q3’16. Q3’16 saw VC-backed fintech funding drop 17 percent to US$2.4B, while deal activity fell 12 percent to 178 deals.

“This quarter, Asia outpaced North America in terms of fintech funding – a major shift from historical norms,” says Warren Mead, Global Co-Leader of Fintech, KPMG International. “The question is whether Asia will continue to set the pace headed into 2017. With the diversity of investments and widespread support for the growth of fintech hubs in the region, it’s a very distinct possibility.”

Anand Sanwal, CEO of CB Insights, adds: “While we continue to see significant investment into fintech companies globally, the euphoria for mega-deals that we saw into the latter half of 2015 has waned. Total investments to key areas like marketplace lending and blockchain technology have both seen declines heading into the tail-end of 2016.”

Neha Punater, Partner and Head, Fintech, KPMG in India said, “The Indian Fintech sector is going to witness a renewed interest in payments in wake of the demonetization measures viewed last week. We have seen many banks and financial institutions exploring potential POC and partnerships with Fintech in areas beyond retail banking i.e. SME lending, wealth management, block chain etc.”

Key highlights from the Pulse of Fintech:

·         Global fintech mega-rounds fell to a new low in Q3’16. Asia saw US$50M+ fintech rounds stay level for the fourth straight quarter, while Europe has not registered a single US$50M+ round to a VC- backed fintech company so far in 2016.

·         The median late-stage deal size in fintech globally fell to US$23M in Q3’16. This is significantly smaller than the same quarter last year, when median late-stage fintech deal size hit US$50.2M globally.

·         VC-backed global fintech deal activity fell for the second consecutive quarter, marking its lowest level since Q2’14. At the current run rate, total annual deals are projected to drop from 2015’s peak high.

·         Total year-to-date funding to VC-backed InsurTech companies reached US$1.36B at the end of Q3’16. InsurTech-focused VC-backed deal activity topped 20 deals during three of the past five quarters.

·         Next-gen payments has attracted US$1.2B+ in 2016 VC-backed funding (year-to-date). The top 20 deals, including Affirm, Mobikwik and One97, raked in 67 percent of the total funding to payments technology companies in the first three quarters.

North America sees fintech funding fall below US$1B

North America saw both fintech funding and the number of deals fall on a quarter-over-quarter basis, as VC-backed startups raised just US$0.9B across 96 deals, a drop of 5 percent in deals from Q2’16.

Funding in Q3’16 to VC-backed fintech companies in North America fell 68 percent compared to the same quarter last year, which saw US$100M+ financings to the likes of Sofi, Avant and Kabbage.

Asia quarterly fintech funding tops US: US$1.2B across 35 deals in Q3’16

While the number of VC-backed fintech deals dropped to a five-quarter low in Asia, funding increased 50 percent on a quarter-over-quarter basis to reach US$1.2B. Year-to-date results suggest Asia-based fintech investment for 2016 could top last year’s peak investment results.

Corporates continue to be highly active in Asia’s fintech investment environment, participating in more than half of all deals to VC-backed fintech startups in Q3’16.

Europe fintech funding on pace to drop below 2015 levels

Q3’16 saw European fintech deals fall 17 percent quarter-over-quarter as fintech funding in Europe dropped 43 percent over the same time period to US$233M. Germany outpaced the UK in terms of fintech funding for the second consecutive quarter, with 35 percent more funding raised by German-based VC- backed fintech companies than those in the UK.

Corporates stay active in fintech

Corporates participated in 30 percent of global VC-backed fintech deals for the second consecutive quarter in Q3’16, driving a significant amount of fintech deals activity globally. Citigroup, Banco Santander and Goldman Sachs have made over 20+ fintech investments in total over the past five quarters, while a host of insurers have launched corporate venture arms.

“Fintech funding is down this quarter, but it in no way reflects a lack of interest among investors, particularly corporates who see fintech as a way to leapfrog ahead of the competition. In Q3’16, corporate venture capital participation in global deals to VC-backed fintech companies reached 30 percent for the second consecutive quarter,” says Brian Hughes, Co-Leader, KPMG Enterprise Innovative Startups Network and Partner, KPMG in the US. “This interest will continue to grow as corporates are looking to take advantage of the opportunities fintech provides.”