Investors invested significantly less money in fintech startups in 2016 than in the previous year. Global investments in young technology companies in the financial services sector fell dramatically last year from USD 46.7 billion (2015) to USD 24.7 billion.
The number of deals fell from 1,255 to 1,076. At USD 11 billion, the private equity segment saw significantly less investment than the previous year (USD 18 billion). However, venture capital was invested in financial services startups in 2016, slightly higher at USD 13.6 billion than in 2015 (USD 12.7 billion), according to the KPMG "Pulse of Fintech" study, which analyzes global investments in fintech startups.
Positive forecast despite decline
The decline is largely due to the uncertainty that pervaded the financial markets last year, according to the study. The effects of Brexit and the US election, along with weakening growth in China and sharp exchange rate fluctuations, have made investors more cautious. Nevertheless, the study authors assess the outlook for fintechs as positive. Investors are increasingly collaborating, and many traditional companies are increasingly integrating fintech solutions into their business models and processes.
Europe collapses – Germany attracts venture capital
The decline in investments in Europe is particularly striking: Here, the total amount of capital invested in fintechs fell from USD 10.9 billion (2015) to just USD 2.2 billion. The number of investments declined from 349 to 318, although venture capital investors showed increasing interest: they closed a total of 242 deals with a total volume of USD 1.4 billion in 2016, which was more than in the previous year (230 deals with USD 1.3 billion). A significant portion of this, in turn, flowed to Germany: According to the study, venture capital investments tripled from USD 106 million to USD 376 million – with an increase in deals from 23 to 31.
Insurtechs, Bitcoin and Blockchain investments on the rise
Investments in insurance startups are seeing a significant increase: in 2016, almost USD 1.2 billion flowed into insurtechs, almost twice as much as the previous year (USD 590.2 billion). Companies in the Bitcoin and blockchain space also recorded increased investments: the total rose by USD 231,448 million from USD 441 million in 2015 to USD 543.6 million last year. Last year, consortia such as B3i were formed in the insurance sector to raise awareness of blockchain technology and promote its development. Many financial service providers have now realized that they can accelerate their own transformation in this segment as well by collaborating with fintechs, according to the study's authors.
And the next hot trend is already emerging, according to the KPMG study: The EU's expanded Payment Services Directive (PSD2) will come into force in 2018. It requires banks to provide third parties with secure access to view account data and initiate payments. According to the study authors, fintechs and internet giants will also jump on this bandwagon.
