Global investment for financial technology (fintech) firms increased edged up to US$12.5bn last year from US$12.3bn in 2014, although the total number of deals fell slightly from 892 to 860.
The statistics, compiled through Pitchbook by Innovate Finance, the not-for-profit membership association for global fintech, shows the US again well in the lead, with a total of 520 deals raising US$7.45bn. China accounted for US$1.88bn, although from only 20 deals, followed by the UK (US$901m/£648m from 72 deals).
The top five was completed by Germany (US$825m from 20 deals) and India (US$411m from 33 deals).
Globally, the most active fintech investor was Sequoia Capital – one of the world’s leading venture capital (VC) firms and an early backer of Apple, Google and Yahoo – with 15 deals including the US online payments start-up Stripe. In the UK, first round fund Seedcamp was the most active with five deals.
There were two notable fintech initial public offerings (IPOs) globally – last October’s £2.5bn IPO of payments processing firm Worldpay in the UK and that of San Francisco-based payment tech firm Square in the US the following month. Marking the advent of a tougher climate for offerings, Square went public at $9 per share but had been values privately at more than $15 per share a year earlier.
According to Lawrence Wintermeyer, chief executive (CEO) of Innovate Finance: “One of the big trends in 2015 was investment in fintech by financial institutions in incubators, accelerators, labs, talent, partnerships, digital merger and acquisition (M&A), and corporate venture funds.
“A couple of years ago, entrepreneurs in the community were looking for introductions to VCs. Last year, they were interested in introductions to institutions. What this reveals is that corporate venture funding could be the new smart money for fintech.”
Last year’s total investment figure of US$901m for the UK was a 35% increase over 2014 – although the actual number of deals was actually down, suggesting larger funding rounds – with Atom Bank (US$125m) and peer-to-peer (P2P) lender Funding Circle (US$150m) leading the two biggest deals. By comparison, the highest proportion of deals was in the US$1m – US$5m category globally.
Online small business funding company Ebury Partners, online money transfer platform Transferwise and mobile money service World Remit were also involved in US$50m-US$100m deals in the UK, with eToro, RateSetter, Azimo, The Currency Cloud, MoneyFarm and Seedrs also active.
Innovate Finance reports that over 60% of the UK VC investment in fintech was in the P2P, alternative finance and payment and remittance segments, with challenger banks pushing investment volume to over 74%. The balance of investment was spread across online wealth management services (aka robo-advice on portfolio management), capital markets, data analytics, crowdfunding and several emerging categories.
Past the peak?
The report coincides with the publication of a UK government-sponsored report from Ernst & Young, which ranks the UK as first among the world’s seven leading fintech hubs – from Silicon Valley to Hong Kong – when measured according to four key criteria: the availability of talented staff, access to investment, the nature of government and regulatory policy, and the demand for fintech services. The report also suggested several areas in which the UK could further improve its performance.
Commenting on the 2015 data for the UK, Ismail Ahmed, CEO and founder of WorldRemit, said: “The headline figure of nearly US$1bn investment in fintech is impressive. Even more impressive is the nature of the companies that are growing as a result.
“UK Fintech is serving global audiences, promoting financial inclusion, modernising infrastructure and enabling new business through innovative lending models. Reassuringly, we are doing serious business here in the UK. There is an absence of the frivolity that sometimes characterises a burgeoning tech scene, and I have no doubt, for the most part, that US$1bn was very shrewdly invested.”
However, while 2015 proved a blockbuster year for fintech investment, the year ended on a note of caution with VCs more conservative in their investment ambitions and major names such as Snapchat and Twitter announcing redundancies. To date the UK fintech sector’s most notable deal of 2016 has been mobile-only challenger bank Mondo’s £6m round, which valued it at £30m.
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