During Q4’17, fintech funding globally remained steady, with $8.7 billion invested across 307 deals. The solid quarter helped propel annual global fintech funding to over $31 billion — equaling the amount raised in 2016, though falling short of 2014 and 2015 when a frenzy of investment spiked results to extraordinary levels.
Early fintechs maturing beyond niche beginnings
The concept of fintech has matured greatly since its inception. Early innovation area such as payments and lending have seen strong maturation, with more established fintechs now looking to move beyond niche markets to offer adjacent services and, in some cases, full stack solutions. For example, Europe has seen a number of fintechs (e.g. Klarna, Zopa and Revolut) apply for banking licenses in order to expand their product offerings. Meanwhile, countries such as Australia and the US are mulling the introduction of fintech-focused banking licenses, which could spur investment over time should they move forward.
Characteristics of fintech investors changing
While venture capital (VC) fintech deals volume has declined significantly over recent years, particularly at the angel and seed stage levels, this decline is partly a result of the evolution of fintech as a whole. Both fintech companies and investors have matured significantly — with maturing companies looking for bigger rounds of funding, and investors shifting their focus from making widespread investments into placing bigger bets aimed at achieving value or sustainability.
Corporate investors becoming more strategic
Globally, corporate investors have also changed their approach to investing in fintechs. Initially, many corporates took a portfolio approach to fintech investing — providing smaller pools of money to a larger group of fintechs in order to develop a better understanding of opportunities and innovations. Now, corporate investors have become confident as to how fintech can help them achieve real value and are focusing on making strategic investments that can help defend their profit pools or help them explore or expand into adjacencies.
B2B focus continues to be a key investor priority
Fintech focused on the B2B market, including payments platforms, SME lending platforms and SaaS solutions aimed at making back office processes more efficient and effective remain a priority for fintech investors. Globally, many financial institutions face significant financial pressures and challenges, particularly related to regulatory reporting and compliance. With regulatory requirements only expected to rise in most jurisdictions, regtech solutions are becoming key focus area for B2B investors and corporates.
Blockchain expectations high heading into 2018
Blockchain continued to garner a significant amount of attention from investors in 2017, with VC investment in particular achieving a record high of $512 million.
Blockchain use cases continued to be developed in numerous jurisdictions. In Singapore, for example, three Asian banks and the Monetary Authority of Singapore (MAS) recently worked together to develop a blockchain proof-of-concept (PoC) aimed at streamlining know-your-customer (KYC) processes. Regulators and governments have been keenly supportive of blockchain efforts, particularly in the Middle East and Singapore.
Blockchain consortia continued to be a key means for developing solutions globally, although the introduction of new consortia has slowed compared to previous years, while the makeup of older consortia has shifted dramatically. For example, insurance consortium B3i announced 22 new members in Q4’17, while banking consortium R3 accepted insurance company AIA as a new member. Several consortia have also seen some members splinter off in order to form smaller, more targeted groups.
VC investment in insurtech rises over $2 billion in 2017
Insurtech continued to be a hot area of fintech investment globally, with VC investment in particular reaching a record high of $2.1 billion in 2017. Numerous fintech companies sprouted worldwide over the year aiming to take ownership of myriad niche markets. Corporate participation in insurtech also remained very high.
Insurtech offerings matured significantly during 2017, from advances in automation to the evolution of personalized insurance offerings, demonstrated by the growth of motor telematics insurance. New insurance business models also continued to evolve, with on-demand products growing quickly, and on-demand insurers Cuvva and Trov further developing and expanding their value propositions.
Looking ahead to 2018, insurtech is expected to hit its stride in terms of investment. Traditional insurance companies are expected to take innovation up a notch, while blockchain consortia (e.g. B3i) are expected to expand and further develop and test specific use cases. Segments expected to heat up include autonomous vehicle insurance, cyber insurance, and aviation and drone insurance. Corporates are also expected to increase their focus on the application of AI in insurtech in order to make processes, such as underwriting, more efficient.
The article “Global fintech funding remains strong to close out 2017” by Ian Pollari, KPMG International, was taken from KPMG’s publication entitled The Pulse of Fintech Q4 2017.