Much has been written post the Brexit vote about the impact on investment into UK FinTechs. But how does the situation look globally? Does the approaching US Presidential election have any impact on investments into the FinTech sector? And are there any signs that the massive growth that this industry has seen in the last two years is starting to slow down or has it even reached a plateau?
North America still leads in terms of FinTech activity
According to KMPG’s ‘Pulse of FinTech’ report, FinTech companies were able to raise $2.5bn in the second quarter of 2016 – this is half the amount of what FinTech companies were able to raise in the same quarter a year ago. This massive decrease can be justified by the fact that there were less large funding rounds in this quarter compared to last year. However, with all the uncertainties in Europe and the US, FinTechs have overall seen a slight drop in venture capital investments. Negative headlines from the likes of Lending Club about unsanctioned loans to its CEO and its family members are increasing investor cautiousness in investing in new and not yet proved businesses. Likewise, we have also heard negative news from other more established FinTech alternative lenders like Prosper and Avant, who have both announced job cuts due to difficulties in raising funds.
So has FinTech investment really reached a plateau?
Having said all of this, global FinTech investment is still on track to outperform the investment in 2015 by the end of this year. Most of this investment is still going into companies based in North America – half of FinTech funding globally is going into this region, i.e. $1.3bn, according to KPMG. But while North America has seen a slight decline in Q2, Europe has seen an increase, mainly driven by increased activity in Germany. As Germany and especially Berlin is actively working on becoming the next FinTech capital after London, it is no surprise that investment into this region is growing.
Efforts in Asia – e.g. with the recently announced FinTech bridge between Singapore and the UK as well as the increased focus on FinTech Sandboxes – has also attracted investment into this region. And as seen in our latest post, the growing FinTech scene in Asia is lined up to not only outpace Europe but potentially even outperform the US by 2020.
So despite investment slightly dropping in Q2, there is no sign on the horizon that this growing industry has reached a plateau. It is however likely that investors are more hesitant when investing in start-up companies as they may have been previously.