Fintech Deals Got Bigger And Better In 2018
Investment in the global financial technology space more than doubled in 2018 due to a few mega deals and startup acquisitions by bigger players, spurring consolidation in the sector.
Fintech deal value rose to $111.8 billion in 2018 from $50.8 billion in 2017 despite only a modest increase in the number of deals, according to KPMG's Pulse of Fintech report. “Mergers, acquisitions and buyouts accounted for the largest fintech investments during the year in both Americas and Europe, while venture capital investments reigned supreme in Asia.”
The growth agenda was a “hot topic” for fintechs, both small and big, across the globe. Later stage and unicorn fintech firms raised large rounds, built international partnerships and made their own acquisitions to drive global expansions, the report said. “This was particularly true among digital challenger banks, which have historically focused on their domestic markets.”
The report cited the example of a number of challenger banks—recently-created small lenders—that made big plays to expand beyond borders. Even established fintech players like Alibaba, Paypal and Stripe made large investments in the space.
Here’s a snapshot of fintech in 2018:
Records, Records Everywhere
Fintech saw year-on-year growth in both volume and aggregate value in a “remarkable” year for the sector. “The past year was characterised by mega deals of all kinds, from Ant Financial's $14 billion late-stage venture capital financing to the $12.8-billion acquisition of Worldpay,” the report said.
The report said that the record growth was driven by significantly higher activity in the second quarter of 2018.
“Even taking out the three big outliers in 2018 (Ant Financial, WorldPay & Refinitiv), the numbers in 2018 are still remarkable," David Milligan, global lead and associate director at KPMG, was quoted as saying in the report. “We’re seeing the value of investment into fintech excluding the outliers up 33 percent, while the number of deals has remained around the same. This means that the average investment per fintech deal is getting bigger—the fintech firms that are getting acquired or funded globally are more mature.”
Insurance Tech Remains Interesting
Tech companies in the insurance space have seen deal values declining over the past two years from its peak in 2016. While values declined, deal volumes held steady suggesting that the space still has enough active interest.
“Primarily driven by outliers, earlier annual tallies suggest the entrance of not only late-stage growth investors but also strategic acquirers willing to pay significant premiums for innovations within insurance product and services lines; that interest is persisting, but check sizes have taken a breather,” KPMG said.
Blockchain Frenzy Matures
The mania surrounding cryptocurrencies and initial coin offerings in 2017 had pushed up investments in the space to a record. Since then, cyrptocurrencies have declined sharply due to regulatory scrutiny, leading to the extinction of many.
Yet, the aggregate deal value in the space in 2018 only saw a slight decrease over 2017. This was due to higher number of smaller sized deals by "more sober institutional investors" who saw opportunities for more efficacious utilisation of blockchain technology.
“Many of the largest blockchain deals of 2018 were all focused on crypto infrastructure and services,” said Kiran Nagaraj, cryptoassets lead at KPMG Blockchain Services. “2019 going into 2020 is really when many of these investments into crypto will start to become real and bear fruit.”
The India Story
Deal volumes in India remained steady compared to 2017, but deal value declined. The top three deals fintech deals in India were:
- Paytm raising $356 million.
- PolicyBazaar raising $200 million.
- CentrumDirect raising $175 million.
KPMG’s Top Ten Predictions For Fintech In 2019
- Consolidation: 2019 will see even higher levels of consolidation especially in mature areas like payments and lending, and emerging areas like blockchain.
- Bigger Deals: Deal sizes will continue to grow in 2019 with investors focussing more on fintechs with proven track record to reduce risk.
- Global Expansion: Challenger banks will continue to grow their service offerings and expand beyond borders.
- Open Banking: Banking that uses technology for greater transparency will get a boost from regulations in Europe and elsewhere.
- Blockchain: There will be a “dramatic” increase in investments in companies that are dedicated in building specific blockchain products and solutions.
- Insurtech Acceleration: Asia will be the hub of insurtech investment growth with U.S. and Europe-based investors looking to use Asia to “test alternative insurance offerings”.
- Regtech Rising: Regulatory technology firms will see investments accelerate in 2019 with startups focussing on helping incumbent financial institutions to reduce costs and improve compliance.
- Financial Institutions: Corporate investment in fintechs will remain strong and may increase from partnerships due to open banking.
- Collaboration In Asia: Fintechs and banks in Asia will collaborate even more in areas like KYC (know-your-customer) norms, anti-money laundering and digital identity management.
- Digital Banking: Traditional banks will increasingly expand into digital banking and that could also give birth to more “nimble” standalone digital banks.