Fintech turns hottest global bet with VC deployment doubling to $13.8b in 2015

Apart from tougher regulations and low interest environment, mainstream banks worldwide count digitisation and fintech as the biggest challenge the industry is facing.

It is not difficult to see why. Fintech startups are disrupting the traditional bank business, and venture capital firms are rewarding them for it.

A staggering $13.8 billion was deployed to a wide array of fintech startups globally, more than double the value of VC investment in the sector in 2014, says the The Pulse of Fintech, a quarterly report by CBInsights-KPMG.

The number of deals rose to 653 in 2015, from 586 the year before, which is nowhere near the increase in deal value. This development highlights the fact that interest in fintech is gaining momentum, with average deal size going up significantly compared to historical levels.

VCs are committing more money, in the expectation that banking and insurance industries are ripe for disruption.

Unlike other investment areas, fintech is growing in every region of the world, as startups take on pressing problems in Asia, Europe and North America. In many places, they are acting as enablers, which has brought enhanced focus on the sector.

More mega-rounds

 

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The number of fintech deals with funding of more than $50 million jumped past 60 in 2015, compared with just 15 in the three years before that.

Most of such deals happened in the first two quarters, after which deal activity fell. Q4 ’15 had just 154 deals, the lowest quarterly total since Q1’13.

Clearly, the sector is gaining a lot of traction. Startups are working on a range of ideas from artificial intelligence and robo-advisors to tools for compliance and regulation. These could become indispensable for the banking sector, which needs cost-saving solutions.

Major trends

Across the world, investors were drawn to the huge potential of fintech as a disruptor to big banks, and as an enabler for banks to kick-start their own innovation.

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Tech-savvy millennials have driven fintech adoption, as they demanded more personalized and convenient services on mobile. Their trust with banks has eroded after the 2008 financial crisis, and this demographic is more interested in advice from friends, family and their social networks, than from financial advisors.

 

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Fintech is affecting regions in various ways. For example, in developing countries in Asia, rise of mobile fintech has opened the door to reach millions of un-banked and under-banked communities. In more developed regions like Europe, fintech is focussed more on creating efficiency, cost-effectiveness and just-in-time personalized services to meet growing customer demand. Fintech hubs have come up in several locations such as London, Singapore, New York, Hong Kong, Tel Aviv and Sydney.

Here are the key trends:

Payments & lending lead fintech space

 

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Out of the 19 fintech unicorns globally, the vast majority are focussed on either payments processing or on lending technologies. For instance, companies like Stripe on the payments side and SoFi on the lending side have attracted significant funding. However, startups focussed on insurance are also gaining weight, as shown by the growth of Zenefits, Oscar and Gusto, all unicorns in new models of insurance, payroll or benefits provision.

Growing deal sizes

 

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Across regions, the most significant change has been in the value of deals. Marketplace lender SoFi had a $1 billion series E funding round led by Softbank, which highlights the trend. Kabbage, Dianrong and a several others have received big funding rounds. The rise of mega-funding rounds ($50 million +) shows that established entrepreneurs and business models in the space, which can be quick-to-market, are attracting more interest than historical levels.

Rising corporate interest

 

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Corporates are getting more active as investors in fintech, having participated in a quarter or more of all fintech deals for three straight quarters in 2015. Most of them are in the financial services, telecom and technology sectors. That has helped startups at a time when VCs may be becoming more cautious overall. Banking companies, who first viewed fintech only as irritating upstarts, have begun to see them as potential enablers. For banks, the entry of tech giants such as Apple and Google into the space is more of a threat than fintech startups.

Slowing investment, expected to rise again

 

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As we saw in other sectors, investors grew more cautious towards the end of 2015. The total VC investment dropped to $27.2 billion between the third and fourth quarters of 2015, compared with $27.2 billion in the same period in 2014. Fintech was affected as well, with investment plummeting to $1.7 billion from $4.7 billion over the same period. While VCs are expected to remain cautious, corporate investments will rise, driven by long-term benefits that fintech can provide their own organizations.

Rise of Series A

Fintech deal share to Series A investments hit 27 per cent in the last quarter of 2015, compared with 24 per cent in the same quarter of 2014. Seed deal share fell to a five-quarter low in the same period, compared with 34 per cent in Q4’14.

Also read:

India: Matrix Partners, others invest in fintech startup Finomena

Investec Australia buys stake in fintech accelerator H2 Ventures

Fintech is our main target: Mandiri Capital CEO Eddi Danusaputro

 

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.