Fintech investments: the trends

Fintech investments: the trends

The amount of funds injected in the financial technology sector has been on the rise since 2010. Back then, fintech funding was for most sectors piddling compared to the current state of the industry. Here we have a look at last year’s global key areas of focus, while considering the actors shaping the future of the industry and fuelling figures reaching now fair heights.

Global investments appraisal

Last year, the total of mergers & acquisitions, private equity and venture financing reached USD 31 billion, a 25% increase YoY. Last quarter alone saw USD 8.7 billion invested in fintech companies globally across 307 deals. This tally is more than commensurate to 2016, proving a steady drive in the sector, but is nevertheless beaten by the unreal enthusiasm that propelled investments in 2014 and 2015.

Global investment activity (VC, PE and M&A) in fintech companies 2010 – Q4’17

Annual global VC fintech deals and financing, 2013 – 2017 (USD billion)

In terms of volumes, total VC investments again exceeded the 1000 mark, making 2017 one of the largest years in the past decade. The volume of deals and their weight is revealing of a trend taking hold in the markets.

Indeed, leaving their niche, early fintechs are looking for larger funding rounds, in order to deepen their position in the market but also to broaden their offer and invest in new markets. This was, for instance, the case in Europe where the sector is especially maturing in the lending and payments fields. There, niche players are becoming more complete organisations, moving towards full stack offerings, and in some cases applying for banking licenses (Klarna, Revolut, Zopa).

This market maturation leads to a change in the nature of fintech investments. Indeed, on their part, investors are responding to this maturation by changing their strategies. They are currently moving from a tactic based on numerous deals of relatively low sizes to larger, more focused investments.

Subsequently, early stage funding is not so prominent as it was, and established fintechs are now biting in the heftiest part of the pie. Last year, 3.5 billion was invested in Series D or later stage financing, the most considerable for this stage so far, indicating the importance of mega-deals and the strength of successful organisations.

Interestingly enough, corporate investors are also following this trend. They are progressively dropping a portfolio approach and are displaying more strategic behaviours, being more confident in the added value fintech can bring to their organisations. As a result, 2017 was a record year for corporate VC investments.

Geographic dispersion

Looking at the geographic distribution, the US clearly stole the show last year. Within the top ten of fintech investments last year, seven were based in the US, two in the UK and one in China, while Asian markets saw a 10% downturn YoY. On the other hand, two of the eight unicorns born last year were Chinese, the rest being US-based.

Global VC-backed fintech funding share by continent 2013 – 2017 (USD million)

Industry trends

Trends in the industry are typically correlated to underlying tech trends and innovations. Last year, the top three global tech trends were artificial intelligence and advanced machine learning, cybersecurity, and mobile payments. The latter saw 369 companies funded in the past 5 years, with around USD 6 billion invested in the sector over the past ten years. The most active investors in the sector were Sequoia Capital, Entrée Capital, and Accel Partners.

Overall, underlying trends in both tech and fintech are relying on big data, its structures, and analytics. The two fields cumulated a bit under 2 USD billion last year, and promise to increase exponentially in the coming few years.

Fintech trends

Within the fintech industry, the fields provoking the highest bustle were commonly B2B solutions. Amongst them, we can cite as sparking the most vivid interest from investors:

  • Payments platforms
  • Lending platforms
  • Back office SaaS solutions
  • Regtech

Accordingly, over the last 10 years, the top 5 funded sectors were:

  • Lending (USD 24.3 billion)
  • Payments (USD 13 billion)
  • Banking tech (USD 7.9 billion)
  • Finance & account (USD 7.2 billion)
  • Consumer finance (USD 6.3 billion)

Lending led the pack these last few years. In 2017, two out of the eight newly born unicorns were lending companies. The field is also evolving, as online mortgages received quite some attention last year and are expected to increasingly do so in 2018. Here as well, niche players are looking to widen their proposition, and aim to enter a market where credits are coming together with collaterals.

Insurtech as well is rather popular amongst VCs, and investments in the sector rose significantly. Last year reached a record of 2.1 billion in VC fundings for 247 deals, an 18% increase YoY.

Insurtech VC investments, value & vlume

 
By Jean Leguy, Research Coordinator

Further readings and sources:

The State of Fintech Report 2017, PwC & Startupbootcamp Fintech

Pulse of Fintech Q4’17, Global Analysis of Investment in Fintech, KPMG International, February 13, 2018

Fintech Trends to Watch in 2018, CB Insights, 2018

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