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Global analysis of
investment in fintech
27 April 2017
22017KPMGInternationalCooperative(“KPMGInternational”).KPMGInternationalprovidesnoclientservicesandisaSwissentitywithwhichtheindependentmemberfirmsoftheKPMGnetworkareaffiliated.#FINTECH
Welcome to the Q1’17 edition of KPMG International’s Pulse of
Fintech report, in which we explore global trends and deal activity
within fintech.
Globally, fintech investment held relatively steady as the market
undertook a reset following a year of uncertainty across
NorthAmerica, Europe and Asia. Mergers and acquisitions (M&A)
remained low following a major drop off in Q4’16, while venture
capital (VC) funding to fintechtook a small dip quarter over quarter.
Meanwhile, private equity (PE) investment and deal activity rose
slightly.
Corporate investors continued to drive fintechinvestment, with banks,
insurance companies and other financial institutions recognizing the
need to innovate and making investments accordingly. This quarter,
corporates moved beyond traditional direct VC fintech investment
and looked towards building partnerships and alliances with fintech
companies in order to achieve their objectives.
On a regional basis, both the US and Europe started off the year with
upticks in fintechinvestment and deal activity —with Europe in
particular experiencing the highest level of investment in years. Asia,
meanwhile, saw fintechinvestment drop, as the lack of mega-deals
continued, and China introduced new fintechregulations that may
take some time for fintechcompanies and investors to digest. The
rapid expansion of Asia’s fintechecosystem across jurisdictions and
strong ongoing interest in fintechin the region, suggest this decline
may be short-lived.
Within fintech, payments and lending continued to dominate deals in
most jurisdictions, although artificial intelligence (AI), the Internet of
Things (IoT), big data, regulatory technology (regtech) and insurance
technology (insurtech) are quickly growing on the radar of investors.
We examine these results and other trends in this quarter’s report.
We also explore a number of questions permeating the fintech
market today, including:
―While Q1’17 was quiet, is the tide about to turn for fintech
investment
―How is the revised Payment Services Directive (PSD2) driving
fintechactivity in Europe
―What is driving the proliferation of fintechhubs globally
―Is regtechready to come into the investor spotlight
We hope you find this quarter’s edition of the Pulse of Fintech
insightful. If you would like to discuss any of the information
contained in this report, contact a KPMG advisor in your area.
servicesandisaSwissentitywithwhichtheindependentmemberfirmsoftheKPMGnetworkareaffiliated.
Dennis Fortnum
Global Chairman,
KPMG Enterprise,
KPMG International
Ian Pollari
Global Co-Leader of Fintech,
KPMG International and
Partner,
KPMG Australia
Warren Mead
Global Co-Leader of Fintech,
KPMG International and
Partner,
KPMG in the UK
Brian Hughes
Co-Leader,
KPMG Enterprise Innovative
Startups Network, Partner,
KPMG in the US
Arik Speier
Co-Leader,
KPMG Enterprise Innovative
Startups Network, Partner,
KPMG in Israel
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Note: This report covers all mergers and acquisitions, private equity investment types and rounds to VC-
backed companies, delineated appropriately. Mega-deals to VC-backed companies from hedge funds or
mutual funds are included. All data is sourced from PitchBook. Page 67 details the methodology and
definitions used.
After a year marked by blockbuster
deals, 2017 starts off modestly:
Combining venture and M&A
investment, fintech deal value in
Q1’17 hit $3.2 billion, not a steep
drop from the $4.15 billion
registered in Q4’16, but a far cry
from earlier outlier quarters.
Transaction volume steadies:
Overall, first-quarter M&A and
venture activity stayed at a new
subdued level observed over the
past 3 quarters, with the first
quarter seeing 260 deals closed in
the fintech space.
VC returns to 2014 levels: In terms
of volume, venture financing is
now seeming to oscillate around
early 2014 or full-year 2013 levels,
having fallen from the peaks of
2015. VC investment, however,
remains on the historically high
end at $2.3 billion.
Corporate participation remains at
elevated level of volume: Having
steadily grown throughout 2014,
with a few quarterly spikes since,
activities of corporations and
corporate venture arms continue to
participate in VC financing at an
elevated level on a historical basis,
with 39 completed rounds reaching
$1.2 billion in VC invested in Q1.
Late-stage financings decline: After a peak of
$16.8 million in 2016, the average VC
transaction size dropped in Q1’17 to $11.8
million. However, the median hit a new high of
$3.8 million in the same timeframe.
Valuations decline at the late-stage: Owing to
timing, the median VC post-valuation dropped
from $151.3 million in full-year 2016 to $41.5
million in the first quarter of the year. Signifying
the temporality of that trend, early-stage VC
valuations rose even higher to $41.0 million for
the same period.
US VC financing sees uptick: Deal flow
slumped to a subdued level throughout 2016
in the US, yet Q1’17 saw a slight increase,
primarily driven by a doubling of late-stage
venture rounds.
Europe sees boom in quarterly VC invested:
Fintech venture activity in Europe has fluctuated
at a historically higher level for several quarters
now, yet thanks to several huge rounds,
Q1’17’s total of capital invested soared to $610
million, the highest tally in years.
Mega-Deals drive Fintechinvestment in Asia:
With several hotspots for fintechyet still being
an emerging ecosystem when it comes to
venture capital, the Asia-Pacific region sees
considerable fluctuation on a quarterly basis in
deal volume. Yet mega-deals will still occur
and boost overall investment value, whether
they are strategic investments or corporations’
establishment of new divisions that attract
significant fundings.
U$
All currency amounts are in USD, unless otherwise specified, data provided by PitchBook.
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In Q1’17, global
investment in fintech
companies hit
across
260 deals
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Fintech investment got off to a quiet start in 2017. While fintechdeal volumes and deal value held
relatively stable quarter-over-quarter at $3.2 billion invested globally, results remained below the levels
seen in 2015 and early 2016. M&A deal value remained particularly low, although the number of M&A
deals increased slightly from Q4’16. VC investment dipped slightly in Q1’17, but remained near $2.3
billion —a solid result compared to previous quarters. Meanwhile, PE deals activity and investment
increased, although both remained well below historical highs.
US continues to drive fintechinvestment, but myriad jurisdictions seeing success
While the US led fintechinvestment in Q1’17, with $1.5 billion across VC, PE and M&A, one of the
strongest elements of the global fintechmarket is in the wide variety of fintechhubs that have developed
around the world. This quarter’s top ten global deals accurately portray the diversity of the global fintech
market, with deals in the US, Canada, India, China, Sweden and the UK making the list. Even within the
US, fintechshave succeeded in growing outside of Silicon Valley, with companies based in Delaware
and Ohio making the top deals list.
Global fintechinvestors focusing more on performance
With the exception of a few jurisdictions, there has been exponential growth in fintechover the past few
years. With fintechcompanies and technologies now maturing in leading jurisdictions, investors appear
to be looking for early investments to prove and show one’s ability to achieve scale. This increasing
focus on performance over potential is a natural progression. Investors that may have financed a wide
range of investments seem to have now focused on making then work rather than increasing the size of
their portfolio. As a result, it is not surprising that fintechinvestment has moderated somewhat over the
past few quarters and into Q1’17.
Maturing fintechstaking aim at expansion
Q1’17 saw a number of mature fintechcompanies and fintechinvestors focusing on expansion as a
means to fuel growth, either geographically or through product or service expansion. Unicorn company,
SoFi, is a great example of this. During Q1’17, SoFiacquired Zenbanxgaining the ability to provide more
functions of a traditional bank, including customer deposits. SoFialso raised over $450 million in order to
fuel expansion into the Australia and Asia markets. During Q1’17, global tech giant Ant Financial also
announced a $200 million investment in KakaoPay to expand its reach and activities to Korea —
although the deal will likely officially close in Q2’17.
Partnership models gaining traction in fintech
Globally, investment in fintechevolved beyond simple acquisitions or VC investments during Q1’17.
Corporates, who have continued to invest in fintechhave also demonstrated increased interest in
partnerships and alliances, in order to leverage the innovation potential of fintech. Through partnership
models, fintechcompanies can gain access to customers and customer data they may not be able to
access independently. At the same time, corporates gain access to technologies and tools that can help
them provide more attractive and cost effective solutions for their customers.
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