About the report
KPMG and CB Insights published their quarterly The Pulse of Fintech Report for the second quarter of 2016. Key topics highlighted in the report are areas in fintech that are gaining momentum, how the definition of fintech continues to evolve, developments in regulatory frameworks and the drivers of VC investment in InsurTech.
In Q2 2016 funding to VC-backed fintech firms dropped by 49% compared to the previous quarter, while deal activity dropped by 12% versus the first quarter. Fintech seed deal share dropped to a five-quarter low in Q2 2016 from 35% to 29% quarter-on-quarter. On the other hand, corporate participation in VC-back fintech deals rose to a five-quarter high and reached 32% in Q2/16, while the biggest fintech investors from the banking sector are Goldman Sachs, Citigroup, and Santander. In Q2/16 VC-backed fintech firms raised USD 2.5 billion across 195 deals globally.
Highlights from fintech
Fintech is evolving as many new ideas and innovative technologies emerge to disrupt different areas of finance. While fintech funding has declined in Q2/16, the year 2016 is still set to exceed the previous year in terms of VC funding globally. So far, lending and payments platforms have received a lot of attention. However, as the definition of fintech is evolving a lot of new technologies and fintech sub-sectors have been receiving attention and funding this year, including the Blockchain technology, robo-advisors, and InsurTech.
Furthermore, there is a clear trend of traditional players in the financial industry setting up their own internal innovation labs in collaboration with fintech start-ups to develop and test new technologies to stay competitive in their product and service offerings.
Regulators & fintech
While regulators have been very fintech-friendly in the US, the UK and Australia, Asia is faced with more conservative regulatory regimes, which pose challenges to fintech start-ups in parts of the region. Nonetheless, fintech has been growing in Asia as witnessed by Ant Financial’s USD 4.5 billion funding round in April.
Investment in InsurTech is largely driven by changes in customer demands for a more tailored service and traditional insurance companies’ recognition that they need to adapt and improve their services to compete with new competitors from the fintech space. In 2015, InsurTech attracted USD 2.5 billion of VC investment compared to USD 1 billion in Q2/16 alone. A substantial amount of this investment has been driven by traditional insurance companies’ VC arms.