Venture capitalists (VCs) remain excited about funding fintech start-ups across a wide range of sub-sectors. Payments and lending continue to dominate the global fintech investment landscape, both in terms of number of fintechs and the level of investment; however, we are seeing emerging levels of interest in data and AI, RegTech and crypto-assets/currencies. M&A activity is also growing as more mature fintechs (such as payment firms) seek exits or international expansion into new markets. Large deals at all stages powered fintech investment in the first half of 2018. During this period, the global investment in fintech reached a new record high, driven in part by two massive deals — the USD12.9 billion acquisition of Worldpay by Vantiv and the USD14 billion VC funding round raised by Ant Financial. This pattern of fewer, larger deals is expected to continue in 2019 as it indicates that the global fintech market is maturing at a fast pace.
We expect to see banks working together in some markets, and in some cases, co-investing in order to mutualize costs in areas of limited-to-no competitive advantage. These areas are likely to be know your customer (KYC) and anti-money laundering (AML). Furthermore, banks are likely to look for more strategic partnerships and investments to help them pursue business model extensions and new growth opportunities. Some banks have paraded corporate venture funds to carry out transactions, but most have pulled back, with concerns about integrating start-ups into the organization and/or a preference to do it in-house. Consequently, there is a greater willingness to get involved in JVs or partnerships with fintechs, for instance, with online/digital lenders.
"In the past 12 months, we have seen banks/corporates (directly and through their VC funds) double the level of investment in fintech to reach a record level of USD23 billion. This now represents around a quarter of all investment in fintech and we expect this trend to continue." - Ian Pollari, Partner, Global Co-Leader, KPMG Fintech practice, KPMG Australia