After 2015’s record-setting $46,70billion in total global funding to fintech companies, 2016 experienced a decline in the market with a 47,2% slide in fintech investment.
According to KPMG International’s The Pulse of Fintech, a quarterly report on global fintech investment, the 2016 fintech funding total of $24,7-billion was still significant compared to pre-2015 investment levels.
Merger and acquisitions (M&A) and private equity (PE) fintech deals dropped considerably in 2016, while venture capital (VC) investment reached a new high of $13,6-billion compared to $12,7-billion in 2015. Three Chinese mega-rounds buoyed global fintech funding significantly, led by the Q2’16 Ant Financial record-setting $4,5-billion funding round.
While VC investment softened somewhat in the second half of 2016 due to a decline in mega-rounds, the year ended on a positive note, with $2-billion invested in Q4’16 across 200 deals, compared to $1,9-billion across 176 deals during the previous quarter.
“While fintech in South Africa, or across the African continent, still has not seen the level of investment in other global jurisdictions, there is an accelerating trend of fintech becoming the focus of investors, early stage (VC, angel and seed) and later stage (especially private equity),” says Joelene Pierce, a partner in financial services for KPMG in South Africa.
“However, this is virtually immaterial compared to the annual spend on IT between the South African banks, as well as the Insurance, Health and Wellbeing sectors. A significant amount of such ‘in-house’ spending on Fintech is expectedly in the form of enterprise development advances to start-ups and SMEs, developing Fintech products and services, as well as corporate venture capital type deals.
“The expectation is that the internal ‘corporate venturing’ type Fintech activities of the big banks and the large players in South African health and insurance sectors will have a knock-on effect on increasingly paving the way for pure private equity and venture capital investors to invest directly in fintech ventures,” says Pierce.
Global venture investment in bitcoin and blockchain technologies reached a high of $543,6-million in 2016, compared to $441-million in 2015; however, the deceleration in deal count of 132 versus 191 deals closed in 2015 likely signifies that some initial hype in blockchain is fading and greater evidence of robust applications will be required for future investment.
Insurtech is predicted to continue the strong growth witnessed in 2016 as the insurance industry plays catch-up with the innovations seen in the banking industry. Growing applications of innovative technologies like wearables, the Internet of Things and artificial intelligence to the insurance industry are also likely to spur further investment. There is also likely to be increasing participation of tech giants in the fintech sector. Already companies like China-based Alibaba Group are targeting promising fintech companies as a means to expand globally.
“2017 is shaping up to be a pivotal year for fintech globally,” says Brian Hughes, co-leader at KPMG Enterprise Innovative Startups Network, and national co-lead partner: KPMG Venture Capital Practice at KPMG in the US.
“Because valuations have corrected, the market has set up a perfect storm for IPOs and M&A to happen in 2017. An increasing number of exits will likely only stimulate demand for new investments thanks to the dry powder already present in the market.”