23 May 2018

Venture Capital Investment In FinTech Reaches Record $27.4 Billion High

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Global investment in FinTechs by venture capital grew to a record $27.4 billion in 2017, spurred on by high deal value in the US, UK and India. Digital payments and lending services attracted the most investment capital.  

FinTech (financial technology) startups continue to draw the interest of venture capital around the world. Venture capital firms and funds continue to see great potential in the disruptive FinTech firms which are providing user-friendly financial services and products through modern and innovative technology: digital payments services and online lending platforms being the foremost among them.

Confidence in FinTech has accelerated venture capital financing in the industry to a record level of $27.4 billion in 2017 – a growth of 18% from 2016. According to a recent report from consulting firm Accenture, the growth in FinTech investment has been driven by a surge in deal value in the US, UK and India.

In the US, the value of venture capital investment deals jumped 31% to $11.3 billion in 2017. Meanwhile, in the UK, deal values almost quadrupled to $3.4 billion, while India saw a near quintupling of investment to $2.4 billion in 2017. The volume of global FinTech deals also rose greatly, from about 1,800 in 2016 to almost 2,700 in 2017.

Julian Skan, Senior Managing Director in Accenture’s Financial Services practice, commented, “Much of the growth, particularly in the U.S. and UK, has been driven by big new investment flows from China, Russia, the Middle East and other emerging economies.”

The notable decline in investment share in the Asia-Pacific (APAC) region in 2017 is attributed to a sizable drop in FinTech financing in China, where investment declined to $2.8 billion from a record high of $10 billion in 2016. After a 2016 which boasted the multi-billion dollar financing of FinTech Ant Financial and Lufax, investors in China pulled back in terms of deal value, which declined to $19 million on average in 2017 from $186 million the year prior. The number of deals, however, nearly tripled to 146 in 2017 from 54 in 2016. And while there was a higher volume of smaller deals, there were still some fairly large FinTech deals in China, with real estate broker Homelink raising $440 million and online finance firm Tuandei raising $290 million.

Meanwhile, the growth of venture capital FinTech investment last year in the US, UK, and India included some rather sizable deals. In the US, Kabbage Inc – an online lender for small business – raised $900 million, while online lender Social Finance Inc raised $500 million. In September 2016, US-based LendingPoint managed to raise half-a-billion dollars from a credit transaction. The US continues to be an important center for FinTech development, accounting for over half of the $97.7 billion global venture capital investment since 2010.

In the UK, BGL Group – a digital insurance distributor – raised $900 million. The large deal helped push the overall value of FinTech investments in the UK to a record $3.4 billion in 2017. Digital payments company TransferWise raised $280 million in another sizable transaction.

In India, mobile-first financial services company Paytm raised $1.4 billion in venture capital, pushing FinTech investment levels to almost five times that of 2016. The number of deals also increased, seeing a year-over-year rise of 65%. Accenture reports that the increase in deal activity derived largely from a central bank “demonetisation” policy aiming to fight corruption. The policy banned high-value bank notes, shifting a large volume of transaction to digital payments and cashless services, including Paytm.

Accenture notes that FinTechs specialising in lending and payments services and products accounted for the bulk of US investments in 2017, swallowing up 60% of $11.3 billion. As can be seen in the above chart, the global makeup of deal value by FinTech specialisation mirrors the US situation: payments and lending firms took the bulk of the money last year, with 30% going to each; insurance-providing FinTechs took 12%.

The analysis also shows that the global volume of FinTech deals grew from about 1800 in 2016 to almost 2700 in 2017. From 2010 - 2017, the volume of deals grew at a compound annual growth rate (CAGR) of 35%.

“This volume of investment reflects the soaring demand within financial services for new digital innovations, as these technologies prove their value and applicability in the market,” said Richard Lumb, Group Chief Executive of Financial Services at Accenture. “That will continue to position FinTechs for a vital role in helping reshape the financial services landscape.”

Click here for the original article from Consultancy.  

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