The UK remained the top destination for fintech investment activity in Europe with over $20.7bn in deals in 2018 but lost its global crown.
The UK remained the top destination for fintech investment activity in Europe with over $20.7bn in deals in 2018, though, the UK lost its global crown from H1 with the activity tailing off in the second half of the year, according to the latest KPMG Pulse of Fintech report.
Total investment activity in the UK in 2018 was almost four times higher than 2017 levels ($5.6bn) despite the total number of deals dropping. The levels reached in the UK accounted for the majority of activity in Europe – half of which came from the $12.8bn WorldPay acquisition in the first half of the year.
For the second half of 2018, UK investment activity dropped significantly to a total of $1bn compared to $2.8bn in the same period in 2017, a trend reflected widely across Europe.
Globally fintech investment activity rose to a record $111.8bn, more than double the $50.8bn in 2017, fuelled by M&A and buyout deals.
Anton Ruddenklau, Global Co-Lead, KPMG Fintech, said: “Despite activity tailing off in the second half of the year, the UK fintech sector reached record highs with an exceptionally strong 2018 – primarily driven by the acquisition of WorldPay by Vantiv at the start of the year.
“Fintech investment trends can be relatively agile but it remains to be seen if the drop in activity in H2 is due to Brexit uncertainties or the start of a wider trend, possibly the end of this fintech cycle as the next generation starts to emerge. We have seen a noticeable squeeze for early stage funding as investors focused on more secure bets. Overall we expect fintech levels to remain robust in 2019 in part due to further consolidation from companies looking to increase scale.”
Ian Pollari, Global Co-Lead, KPMG Fintech said: “The growing deal sizes, higher levels of M&A activity and the geographic spread of deals all highlight the increasing maturation of the fintech sector on a global scale.
“Fintech start-ups in markets as diverse as Germany and Brazil are attracting larger and later stage rounds, while the more established fintech leaders in the US, UK, and Asia are making their own investments and acquisitions in order to expand their product and geographic reach.”
2018 Key Highlights
“Beyond new fintech-fuelled business models, the increasing regulatory and legal obligations emanating from PSD2, GDPR and other regulations are impacting both established players and emerging fintechs,” said Anton Ruddenklau, Global Co-Lead, KPMG Fintech. “As a result, there is increasing interest in technologies – like AI and machine learning – that can be used to help manage compliance requirements more effectively. There’s little doubt that technology investment is going to go up, up, up.”
US sees record fintech investment and deal volume
US fintech investment for 2018 more than doubled to $52.5bn, from $24bn in 2017, across a record 1,061 deals. While M&A and buyout activity accounted for the majority of this funding, US-based fintech VC funding also rose significantly, from $7bn to $11.4bn. The $17bn Refinitiv deal dominated the $25.4bn investment in Q4’18.
Canada and Brazil continue to expand fintech investment
Latin America was a strong target for fintech investors in 2018, with Brazil achieving a record high of $556m across 28 deals. Canada saw a record 119 fintech deals in 2018 – bringing in $1.18bn of investment.
Europe sees record annual investment despite decline in Q3 and Q4’18
European fintech rose exponentially in 2018 to a record $34.2b raised across 536 deals, compared to $12.2bn in 2017. Much of the 2018 funding occurred during the first half of the year, with total investment slumping to $4.3bn in Q3’18, and to $1.3bn in Q4’18 – an eight-quarter low.
The UK’s $20.7bn, up from $5.6bn in 2017, accounted for the majority of fintech funding for the region– more than half of which came from the $12.8bn WorldPay acquisition in the first half of the year. Q3 and Q4’18 investment dropping significantly, suggesting that fintech investors in the UK may have drawn back due to Brexit uncertainties.
Germany and France experienced a drop-off of fintech investment in 2018. In Germany, $1bn was raised across 57 deals, compared to $1.7bn across 88 deals in 2017, while France saw $294m raised on 34 deals in 2018 versus $733m on 50 deals a year earlier.
Asian fintechs attract $22.7bn in funding – on strength of Ant Financial deal
Fintech investment in Asia rose from $12.5bn in 2017 to a record high $22.7bn in 2018, while deals volume dropped marginally from 382 to 372. VC investment was particularly strong in the fintech space in Asia, accounting for $19.6bn in investment.
China accounted for the lion’s share of Asia fintech investment, with $18.2bn in funding during 2018 across 83 deals, led by Ant Financial’s $14bn raise in Q2. India fintech funding declined year-over-year, although still reaching US $1.7bn across a record 115 deals, while investment and deal volume in Singapore grew for the fourth straight year, accounting for $347m across 61 deals. Australia saw $572m across 28 deals.
Fintech investment expected to remain strong in 2019 despite increasing uncertainty
While geopolitical volatility and trade concerns could put a damper on fintech investment in 2019, the strong diversity of global fintech hubs, and the strengthening of subsectors, such as regtech and insurtech, should contribute to continued growth. AI and automation are expected to remain very hot areas of investor interest at the technology level.
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About KPMG Fintech
The Financial Services industry is transforming with the emergence of innovative new products, channels and business models. This wave of change is driven by evolving customer expectations, digitalization, as well as continued regulatory and cost pressures. We are passionate about supporting clients to successfully navigate this transformation, mitigating the threats and capitalizing on the opportunities. KPMG Global Fintech comprises professionals in over 45 fintech hubs around the world, working closely with financial institutions and fintech companies, to help them understand the signals of change, identify the growth opportunities and to develop and execute on their strategic plans.
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