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UK fintech defies global investment slowdown

UK fintech defies global investment slowdown

In H1 2019, the UK attracted $3.06bn of new funding into the fintech sector

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  • In H1 2019, the UK attracted $3.06bn of new funding into the fintech sector 
  • For VC and PE investments, the average funding amount per deal increased by 90% from $13.6m to $25.9m
  • Global fintech investment dropped from $62.8bn in H1 2018 to only $37.9bn mid-way through 2019
  • Asia saw investment activity decline to $3.6bn from £18.3bn in H1 2018 

Wednesday, July 31, 2019

The UK fintech sector saw a total of $3.9bn of investment activity in H1 2019, accounting for 6 of the top 10 deals in Europe* and a staggering 68% of Europe’s total Venture Capital (VC) and Private Equity (PE) investment, according to the Pulse of Fintech H1’19, published by KPMG. 

UK M&A activity was down, meaning 2019 has not reached the unpreceded levels of investment activity of H1 2018, when the $12.8bn WorldPay acquisition helped the UK generate $18.0bn of investment activity. However, behind the headline number is a much more promising picture of increased funding into the sector. 

Commenting, Anton Ruddenklau, UK Head of Fintech at KPMG said: “We are set for 2019 to be another record year for the UK Fintech sector. We have already seen $3.06bn of new funding from VC and PE that compares to only $3.42bn for the whole of 2018. Whilst the first half of 2018 saw some blockbuster M&A deals in the UK, M&A is set for a boost in the remainder of 2019 when the next acquisition of WorldPay closes. This could even see the UK overtake China in overall fintech investment activity.

“But, the UK cannot rest on its laurels, there was a reduction in Angel and Seed VC investment which the sector needs to focus on supporting in order to foster the next generation of fintechs.”

Globally, the diversity of jurisdictions attracting significant funding continued to grow, with big deals during the first half of 2019 coming from France, Argentina, Canada, China, Germany, and the United States. The diversity helped to keep fintech investment relatively strong despite the lack of massive deals in any one jurisdiction, which typified the record 2018 year. Fintech investors across jurisdictions remained focused on a smaller number of large deals.

“The introduction of open banking is emerging as a significant driver of fintech investment, along with the opportunities presented by technologies like machine learning and AI,” says Ian Pollari, Global Fintech Co-Leader, KPMG International. “We’re seeing the growth of sectors like wealthtech and proptech, in addition to increasing participation from the big tech companies looking to leverage the deep customer information they have to expand their reach into financial services.”

NOTES 

*The UK accounted for 6 of the top 10 deals in Europe including: Greensill Capital ($800 million), World First ($717 million), OakNorth ($440 million), Checkout.com ($230 million), Iwoca ($196 million), and WorldRemit ($175 million).

2019 Key Highlights 

  • Global fintech investment dropped off last year’s pace - from $120 billion in 2018 to only $37.9 billion mid-way through 2019. This decline might be short-lived given the massive M&A deals on the horizon. 
  • Corporate-participatory venture investment, which reached an astounding $25.3 billion in 2018, fell to just $4.75 billion in H1’19 as corporates and their venture arms took a pause from large deal activity. 
  • PE firms maintained the torrid pace of investment set in 2018 – propelled by the continued maturation of the fintech sector and resulting investment opportunities in category leaders. Global PE investment reached over $1.9 billion in the first half of the year.
  • M&A activity took a breather in Q2’19, with less than $4 billion of activity globally versus nearly $20 billion in Q1. This lull is expected to reverse quickly, given recently announced deals by Worldpay, First Data, and Total System Services expected to close in the second half of 2019.
  • There has been a pronounced decline in overall investment into the blockchain and cryptocurrency sectors so far this year, with investment dropping from $5 billion across 586 deals in 2018 to only $1 billion across 171 deals in H1’19. 
  • Insurtech investment volume dropped dramatically over the first half of 2019 as early stage funding sank. Total investment in insurtech dropped from $7.6 billion in 2018 to only $1.1 billion in H1’19.

Investment remains strong in US

Following a record year in deal volume and value, overall investment in fintech remained strong in the US during H1’19, reaching $18.3 billion across 470 deals, powered in large part by a strong first quarter to the year.  M&A activity was particularly hot in the US during H1’19 – accounting for 5 of the top deals in the US (i.e. Investment Technology Group: $1 billion; CSI Enterprises: $600 million; PIEtech: $500 million; IQMS: $425 million; and Viteos Fund Services: $330 milion). Fintech-focused VC investment reached a record level in the US during Q2’19, bolstered by $300 million funding rounds to Carta and Affirm. 

The US showed an increasingly diverse number of fintech hubs, with the top 6 deals involving companies from across the United States, including: Dun & Bradstreet (New Jersey), Investment Technology Group (New York), CSI Enterprises (Florida), PIEtech (Virginia), Onestream Software (Michigan), and SoFi (California). While payments remained a hot sector for investment in the US, during H1’19 there was also an increased focus on B2B deals – as evidenced by Mastercard’s acquisition of global P2P and B2B transfer company Transfast and JPMorgan’s acquisition of medical payments technology company InstaMed.

Americas sees strong investments in Latin America and Canada

Outside of the US, Latin America was a strong target for fintech investors in the Americas during 2018. Brazil in particular saw a major increase in fintech funding, achieving a record high of $500.1 million across 31 deals. While, Brazilian fintech investment took a breather in H1’19, Argentina picked up the slack. The $725 million buyout of Argentina-based Prisma Medios de Pago by Advent International was among the top fintech deals in the Americas during H1’19.

Canada saw a massive H1’19 in terms of fintech investment, with over $1.55 billion invested in Q2’19 alone, including the $405 million acquisition of Toronto-based Wave Financial by H&R Block and the $844 million acquisition of Calgary-based Solium (re-branded Shareworks) by Morgan Stanley as part of their efforts to further broaden their suite of services. 

Europe sees solid investment in H1’19 

European fintech investment across M&A, VC and PE deals remained solid in H1’19, on par with trends seen in 2018. Total investment for H1’19 reached $13.2 billion. Meanwhile, deal volume declined for the 6th consecutive quarter as European investors focused their energy on later stage rounds and more mature companies. Fintech-focused M&A activity declined from Q1 to Q2’19 – however, the region will likely see another blockbuster quarter once the Worldpay acquisition closes.

Europe saw 10 fintech deals over $100 million in value in the first half of the year, led by the $6 billion buyout of Concardis in Germany. Private equity investment in fintech continued to grow in Europe during H1’19; only halfway through 2019, Europe-based PE investment in fintech reached $1.2 billion compared to the record $1.96 billion seen during all of 2018.

Asian fintech investment falls off a cliff

Fintech investment in Asia dropped significantly in the first half of 2019 – reaching only $3.6 billion across 102 deals, a far cry from the record level of investment seen in 2018. Mega-deals, which bolstered 2018 investment totals, took a pause in the first half of 2019. 

While China-based fintech investment was relatively slow, Asia saw a number of other jurisdictions drawing attention from fintech investors in the first half of 2019. The top ten deals within Asia included companies from seven different countries. In addition to four deals in China and one in Korea – a $200 million raised by Blockchain Exchange Alliance — the other deals came from Australia (AirWallex: $100 million), Indonesia (Akulaku: $100 million), Vietnam (Momo: $100 million) and Singapore (GoBear: $80 million). The diversity of these deals highlights the significant growth of fintech hubs in the region.

Fintech market growing as virtual banking licenses issued in Hong Kong (S.A.R.), China

Hong Kong (S.A.R.) made major strides to support the development of fintech during H1’19, with the Hong Kong Monetary Authority issuing its first eight virtual banking licenses. Those chosen reflect a diverse mix of non-traditional banking organizations, including insurance companies and telecoms. Several of China’s big tech giants were also represented among the companies that obtained virtual banking licenses, including Tencent and Ant Financial. Singapore also announced that it will issue up to five digital banking licenses to non-banking entities in other sectors such as telecom and ride-hailing. These licenses are expected to spur ongoing interest in challenger banking in the region.

“Hong Kong (S.A.R.)’s new banking licenses are likely to spur significant fintech investment – not only in Hong Kong (S.A.R.), but across the Asia-Pacific region,” says Anton Ruddenklau, Global Fintech Co-Leader, KPMG International. “The rise of challenger banks will also likely spur other companies, including traditional financial services organizations, to take more concrete steps to compete. The region will definitely be one to watch over the next twelve to eighteen months.”

 

For more information, contact:

Christina Bridge, KPMG UK 

E: Christina.Bridge@KPMG.co.uk

T: +44 (0)7789504905 

 

Olivia Shalofsky, KPMG UK

E: Olivia.Shalofsky@KPMG.co.uk

T: +44 (0)7469441308

 

About KPMG International

KPMG LLP, a UK limited liability partnership, operated from 22 offices across the UK with approximately 16,300 partners and staff. KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 153 countries and territories and have 207,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG FinTech professionals include partners and staff in over 50 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. 

© 2020 KPMG LLP, a UK limited liability partnership, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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