Venture capital funding for wealthtechs has seen a dramatic increase in the first half of 2019, powered by a series of mega deals by challenger banks in particular. Wealthtech’s rapid emergence and growth in recent years has been fueled, in part, by branchless digital start-ups looking to build out their capabilities and services.
The industry is now shifting into consolidation mode. The enthusiasm around innovation and market possibility has given way to more considered, rational behavior. As VCs and other funders contemplate the depths of their own pockets and willingness to fund wealthtechs further, marriages between large and established financial institutions and brands and wealthtech start-ups are becoming increasingly attractive. Start-ups get the fresh funding they need and the credibility that comes with established brand and presence. For their part, big banks and insurance companies are gaining access to valuable tech that is free of legacy issues.
Meanwhile, operating costs for wealthtechs have fallen considerably. A wave of new supply and client-facing technologies has shaved millions off the purchase and ongoing service costs of front and back office software. Further, by using these technologies wealthtechs are turning their backs on the variable pricing structures offered by many technology suppliers to more attractive fixed price models under which costs remain constant regardless of growth.
*Note that PitchBook & KPMG’s delineation of wealthtech is much more specific than broader wealthtech definitions, as it is constructed from the intersection of fintech with asset management and consumer finance. Consequently, overall levels are, as expected, lower than what other data providers may report. Please refer to the report for the methodology and definitions.