Wednesday, 09 January 2019

There has been a flurry of prominent fintech investments recently. Propel Venture Partners’ invested in finance app Charlie. Kleiner Perkins made a massive $250 million investment in Plaid and another investment in Plastiq. Eniac Ventures led an investment in Zero and Lennar Corporation and Felicis Ventures led Hippo’s latest round of funding. Given these deals and others, we thought it would be a great time to take stock of the past year in fintech investment and the biggest trends.

Drawing on data from KPMG’s The Pulse of Fintech H1 2018 report, overall fintech investment has been very strong so far this  year. In the first half of 2018, global investment in fintech companies hit $57.9 billion across 875 deals (venture capital, private equity and mergers and acquisitions), surpassing global investment in fintech for all of 2017 ($37.9 billion). This was driven in part by two massive deals: the $12.9 billion acquisition of WorldPay by Vantiv and the $14 billion venture capital funding round raised by Ant Financial.

 

In the first half of 2018, global investment in fintech companies hit $57.9 billion across 875 deals

 

These two behemoth deals aside, fintech investment was still strong in the first half in 2018, with most regions seeing a consistent or increasing number of deals and total investment. In the US, investors flocked to fintech subsegments, such as regtech and investment banking, and venture capital reached a new quarterly high of over 3 billion in the second quarter of 2018.

In Europe, the $12.8 billion acquisition of WorldPay by Vantiv and the $2.2 billion purchase of iZettle by PayPal boosted total fintech investment in the first half of the year; however venture capital investment was also strong compared to previous quarters. In Asia, even excluding Ant Financial’s record-shattering $14 billion Series C funding round, overall fintech investment grew quarter-over-quarter in India, Australia and Singapore between the first and second quarters of 2018.

 

Giving a broader range of companies access to customers’ bank data and payment capabilities has broadened the fintech ecosystem, driving innovation in previously unimpacted verticals.

 

The full report offers a wealth of knowledge, but a few trends in particular jump out. The first is the expansion of fintech innovation beyond traditional verticals. In Europe, this is likely due to the effects of PSD2 on the Open Banking landscape. Giving a broader range of companies access to customers’ bank data and payment capabilities has broadened the fintech ecosystem, driving innovation in previously unimpacted verticals.

In the US, Open Banking initiatives have been driven by consumer demand, rather than regulation, and have taken on a different form. The focus of Open Banking in the US has started to shift from simple access to data to access to functionality. Providing non-financial services companies with the means (typically through open APIs) to incorporate banking services into their platforms and create more holistic customer experiences has broadened the fintech ecosystem. It has also enabled banks to begin harnessing network effects (an idea described in this article by 11:FS).

 

The focus of Open Banking in the US has started to shift from simple access to data to access to functionality.

 

This is a concept at the core of Open Platform’s mission. As Abhishek Gupta, Head of Open Platform, said: “Where Open Platform becomes a truly powerful innovator is in its ability to infuse banking services across industry verticals, beyond financial services. This is where we’ll see the biggest impact on creating revolutionary new experiences for the customer.”

The concept of being an enabler, rather than the sole provider, of financial solutions across industry verticals is indicative of another trend highlighted in KPMG’s report. Globally, late-stage venture capital has stayed strong, trending upwards slowly, a pattern emphasized in the US that saw large financings of mature, late-stage companies such as Robinhood in the first half of 2018. In fact, KPMG projects that leading players in payments and lending will continue to emerge in the most mature markets, focusing their growth efforts on expanding the breadth of their product and service offerings.

 

“Where Open Platform becomes a truly powerful innovator is in its ability to infuse banking services across industry verticals, beyond financial services. This is where we’ll see the biggest impact on creating revolutionary new experiences for the customer.”

 

The steady upward trend in late-stage venture capital and the view that leaders in payments and lending will continue to grow by offering a broader variety of products and services to customers signals that areas of fintech are maturing. Rather than being acquired or absorbed by larger incumbents, many fintechs are growing to maturity on the merit of their own unique value propositions and offerings to customers.

While some maturing fintechs directly challenge incumbents, many have unique services and specialities, creating a valuable opportunity for mutually beneficial partnership. Robust, open API offerings will be key to allowing incumbent financial institutions to benefit from these types of partnerships, harness network effects and create next level growth in the fintech ecosystem.

 

Robust, open API offerings will be key to allowing incumbent financial institutions to benefit from…partnerships, harness network effects and create next level growth in the fintech ecosystem.

 

As always, we would love to hear from you! Feel free contact us anytime with your thoughts and ideas. We’re excited to carry on our tradition of helping companies turn their innovations into reality and we’re happy to answer any questions you have.

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