Germany surpassed the UK as Europe’s premier financial technology (fintech) funding capital during the second quarter of 2016, with German start-ups attracting US$186m against US$103m for UK firms, according to data from KPMG and CB Insights.
The UK figure for Q2 fell from US$117m in Q1 and was the lowest funding figure in five quarters, almost a quarter of the figure raised by UK start-ups in Q2 2015. However, recent data for July 2016 shows that UK fintech investment held steady in the month following the Brexit vote.
Europe’s three largest fintech funding deals in the three months to the end of June 2016 were all in Germany: marketplace lender Finanzcheck raised US$46m; digital bank N26 took US$40m and payment provider AEVI raised US$34m.
The KPMG-CB Insights report ‘The Pulse of Fintech: Q2 2016’ comments that the data “suggests Germany as a whole is well positioned to attract fintech investors that may be hesitant to invest in the UK post-Brexit.”
However, it also notes: “Regardless of Brexit, the UK will not give up its role as Europe’s fintech leader easily, demonstrated by the country’s regulatory sandbox and its recent announcement of a fintech bridge with Singapore aimed at making it easier for UK-based fintech companies to operate in that country and vice versa.
“This highlights that the UK intends to continue to foster its strong fintech ecosystem. Leaving the EU may even give it more flexibility to offer fintech incentives.”
Globally, fintech funding in Q2 of this year totalled US$9.4bn, helped by Ant Financial’s US$4.5bn investment in China (the group is a spin-off from e-commerce giant Alibaba). This was despite a 49% drop in fintech investment from venture capital (VC) firms.
“Despite VC-backed funding to fintech decreasing in Q2, overall fintech funding remains on track to surpass 2015 levels,” commented Ian Pollari, global co-leader of fintech, KPMG International. Based on funding and deal activity to VC-backed fintech companies in the first half of 2016, the projected totals for the whole of this year are US$14.8bn across more than 820 deals.
In Asia, VC-backed fintech companies raise US$0.8bn across 46 deals in Q2 2016 – a decline of 71% from Q1 primarily due to the lack of major mega-rounds. CB Insights chief executive officer (CEO) Anand Sanwal commented: “The decline in fintech financing and deals is in line with what we’re seeing in the broader venture environment for startups, as VCs as well as crossover investors are pushing back harder on profitability and business model concerns.
“Despite the funding drop, previously under-invested areas of fintech such as insurance area are gaining strong momentum among venture investors across geographies.”
In the insurance technology (InsurTech) area, US$1bn VC investment was spread across 82 deals, 63% of which were with US based start-ups. Fifteen of the 20 biggest insurtech deals in the quarter were in the US, with three in Asia and two in the UK.
Despite not attracting the most, or the biggest deals, the UK is regarded as an important leader in the insurtech area for healthcare, automotive insurance, comparison websites and data management.
In addition, the UK’s insurtech sector is showing the emergence of businesses focussed on artificial intelligence, on-demand insurance, peer-to-peer (P2P), blockchain and Internet of Things (IoT)-related insurance solutions.
Murray Raisbeck, Partner, InsurTech, KPMG UK said “In 2015, InsurTech came into its own, attracting US$2.5bn of VC investment, a massive leap compared to the previous four years. 2016 is on track to be another strong year as many traditional insurers are increasingly creating their own venture capital funds in order to invest in technology companies.”
The top five sectors Asian fintech investors are interested in are data analytics, blockchain, lending, payments and regtech, according to Gary Hwa, EY regional managing partner.
On the third day of the Singapore Fintech Festival conference, there was a focus on specific applications of fintech innovation. One was trade finance, which is clearly is ripe for a revolution.
Kicking off day two of the Singapore Fintech Festival, Deloitte Chairman David Cruikshank said that fintech is significant for three reasons. First, customer expectations of services are higher than ever. Second, barriers to entry are lower than before. And finally, financial institutions (FIs) face a threat of what a competitor might do.
Kicking off the first day of the Singapore Fintech Festival, issues with cryptocurrencies were addressed by MIT media labs director, Joi Ito, and panels of technology leaders discussed how they’re using data analytics.