Fintech draws major interest for investment despite VC funding fall in Q3 2016

KPMG and CB Insights have released a report ‘The Pulse of Fintech, Q3 2016’ that addresses the global analysis of fintech venture funding. The report highlighted that fintech funding and deals dropped for the second consecutive quarter.

According to the report, in Q3 2016, Venture Capital (VC)-backed fintech companies raised $2.4B across 178 deals and overall fintech investment reached $2.9B including activity by angels, PE firms, mutual funds and hedge funds.

“There is a lot of liquidity in the market as well as a continued demand for fintech innovation by the large financial institutions. As such, these financial institutions will continue to look for ways to embrace the promise of these innovations through a number of different avenues, including partnerships, direct investment and merger and acquisition transactions,” Brian Hughes Co-Leader, KPMG Enterprise Innovative Startups Network said.

The report stated that the global VC interest in fintech companies remains high. During the third quarter of this year, both the number of fintech deals and the total value of fintech investment dropped when compared to the second quarter. At the end of Q3’16, total funding to fintech companies was $17.8 billion, which suggests that despite the drop in VC funding, fintech remains a strong focus for the broader investment community.

“It is interesting to watch global fintech trends and observe the ‘wave’ of investor interest move across the world. Payments were very hot in the US and then Europe in 2015. In 2016, we are seeing significant investment in payments in Asia,” Anna Scally, Fintech Leader, KPMG in Ireland said.

Moreover, payments is one of the largest subsectors of the fintech industry. In 2014 and 2015, payments technology earned more than $2 billion and $2.7 billion in VC funding respectively, with high-value deals in the headlines. Although funding has dipped in the first 3 quarters of 2016, as in other fintech areas, quarter-by-quarter results show strong and steady interest in this subsector. Also, with continued activity in crowded personal payments landscape, tech giants pushing into retail payments, change in the disruption on the horizon for B2B and cross-border payments and regulatory pressures affecting payment space, the future seem to remain bright for next-generation payments solutions.

The authors anticipate continued growth in mobile payments, as the speed of advancements in technology accelerates the adoption of mobile solutions at an ever-greater pace.

“Online and mobile payment technologies are attracting significant investments globally. As the payments landscape evolves, we are going to see improved methods of bank account to bank account transfers, easier and faster in-app payments and the rise of real-time payments,” Jeremy Welch Subject Matter Expert Payments, KPMG in the UK said.