Global fintech investment soars to record US$57bii in first half of 2018

By Digital News Asia August 7, 2018

Asean emerging as target for fintech growth and global expansion
Singapore paves the way for development of regional fintech innovation sandbox in Asean

Global fintech investment soars to record US$57bii in first half of 2018

GLOBAL fintech investment roared ahead at a record pace in the first half of 2018, with US$57.9 billion (RM236.18 billion) invested across 875 deals, a significant increase from the US$38.1 billion invested in all of 2017, according to the KPMG Pulse of Fintech report.

Highlights of the first half included the successful closing of two massive deals: the record-setting US$14 billion raise by Ant Financial in 2Q18 and Vantiv’s acquisition of WorldPay for US$12.9 billion in 1Q18.

Overall deal volume was robust, rising from 834 in 2H17 to 875 deals in 1H18. Further, global median size of late-stage venture financings rocketed to US$25 million during 1H18, up from the US$14 million annual median size seen in 2017.

Early stage deal size jumped as well, from a median of US$5 million in 2017 to US$9.2 million at the mid-point of 2018.

“Large deals at all stages of investment powered fintech investment in the first half of 2018,” said Ian Pollari, global co-lead, KPMG Fintech.

“But just as notable is the breadth of investment. We’re seeing a mix of fintech sub-sectors drawing increasing interest, including data, AI and regtech — these horizontal capabilities have appeal across the full spectrum of the financial services industry.”

Venture capitalists remain excited about funding fintech startups across a wide range of fintech subsectors, but M&A activity is also growing as more mature fintechs seek exits. Current M&A activity has easily matched the most active M&A periods seen to date.

“In Asean, we are starting to see phase two of the fintech revolution with bigger Chinese fintechs setting their sights on countries in the region as the next step in their growth agenda,” said Chia Tek Yew, head of Financial Services Advisory, KPMG in Singapore.

“With a large population, relatively similar macroeconomics to China, large underbanked populations and a significant number of Chinese people overseas, the region is seen as a strong stepping stone to further global expansion. For Singapore, not only is more investment flowing into regtech and insurtech, the country is paving the way for Asean in the development of a regional fintech innovation sandbox, and seeing stronger regulator support that allows for greater financial inclusion.”

1H18 key highlights

Global fintech investment (PE, VC and M&A) more than doubled – from US$22 billion in the second half of 2017 to a new high of US$57.9 billion in 1H18, buoyed by nine US$1 billion+ megadeals.
Europe’s top four fintech deals accounted for US$22.4 billion in investment, including the US$12.9 billion acquisition of WorldPay by UK-based Vantiv.
In 1H18, investment in fintech companies in Asia hit US$16.8 billion across 162 deals, an increase from 119 deals in 2H17.
Fintech VC volume has remained relatively steady since the start of 2015 – rising slightly to 653 deals in 1H18.
Median late stage VC deal size within the fintech sector rose dramatically - from US$14 million in 2017 to US$25 million in 1H18.

Asian fintech reaches US$16.8 billion

After a solid US$2 billion in 2H17, total fintech funding in Asia surged to US$16.8 billion across 162 deals in 1H18 powered by a massive US$14 billion Series C VC funding round by Ant Financial.

Excluding this mega-deal, Asia still saw strong fintech investment, including quarter-over-quarter increases in overall fintech investment in India, Australia, and Singapore.

Following a global trend, median fintech VC late stage deal size in Asia increased significantly during the first half of the year – rising from US$25 million to US$37.7 million – the highest of any region.

Blockchain and AI continued to be key priority areas for fintech investors in Asia, in addition to insurtech and regtech.

US-based fintechs see surge in VC funding

In 1H18, US fintech companies attracted US$14.2 billion in investment, including over US$5 billion in VC investment.

VC deal volume continued its upward trend, moving from 276 deals in 2H17 to 328 deals in 1H18, driven in large part by resurgent angel, seed and early stage VC deals.

Investors were quick to invest in new startups in emerging fintech sub-segments, including regtech and investment banking, while continuing to pour money into mature, late-stage companies such as Robinhood – whose US$363 million was one of the largest VC deals in the first half of 2018.

Top four deals in Europe

Total investment in fintech companies in Europe hit US$26 billion across 198 deals in 1H18, fuelled by substantial deals by WorldPay, Nets, iZettle and IRIS software – which together accounted for US$22.4 billion of the European total.

However, while deal value achieved a new peak in Europe, deal volume declined, falling from 268 in 2H17 to 198 in 1H18.

The UK led the way in European fintech investment, with US$16.1 billion and five of the top 10 deals in the region, despite possible concerns around Brexit negotiations.

Scandinavia’s growing fintech ecosystem was also well represented, with the buyouts of Nets (Denmark), iZettle (Sweden) and Nordax Group (Sweden) among the top ten deals in 1H18.

Payments and regtech subsectors shine

As one of the most mature sub-sectors of fintech, payments witnessed a number of large exits in 1H18, including successful IPOs by EVO Payments and GreenSky, Paypal’s US$2.2 billion acquisition of iZettle and Vantiv’s acquisition of WorldPay in the UK.

The regtech sector also got off to a hot start in 1H18, with US$1.37 billion invested, already surpassing the 2017 total.

Blockchain moving beyond experimentation

Blockchain continued to draw a significant amount of attention from investors in 1H18, with investment typically focused on more experienced companies and consortia looking to obtain additional rounds rather than on new market entrants.

Large rounds in blockchain companies were seen during the first half of 2018, including US$100 million+ rounds to R3 and Circle Internet Finance in the US, and US$77 million to Ledger in France.

Strong outlook expected for fintech investment

With a significant amount of capital waiting to be deployed, a growing diversity of fintechs hubs across the globe, and more and more corporates looking to leverage fintech in order to drive innovation, investment in fintech is expected to remain strong heading into the second half of 2018.

Like many countries in Asean, Singapore is fast emerging as a global fintech hub and is itself, a microcosm of many systems spanning finance, technology and consumer demands.

Riding into the second half of the year, Singapore fintechs will continue to see 2018 as a year of execution and a year of regional expansion beyond local shores as they accelerate their growth momentum.