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FINTECH INVESTORS PAUSE FOR BREATH

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FINTECH INVESTORS PAUSE FOR BREATH

KPMG Q4’16 Pulse of Fintech Report reveals sharp decline in global fintech investment in 2016 despite record VC funding

 Global investment into fintech companies was down across the board in 2016 as political uncertainty heated-up and the fintech hype cooled, according to KPMG International’s ThePulse of Fintech – a quarterly report on global fintech investment.

After 2015’s record-setting US$46.7 billion in total global funding to fintech companies, 2016 experienced a decline in the market with a 47.2% slide in fintech investment globally.

In the UK, tallying up both M&A and venture investment, it is clear that there was a distinct decline between 2015 and 2016 in activity. Overall investment in UK fintech companies fell more than 85% with deal value down from $4.6 billion in 2015 to $654 million in 2016. In keeping with European trends, however, the volume of deals remained healthy with 124 completed during the period.

London continues to be seen as one of the truly global financial centers which, along with a vibrant tech startup sector, has helped create a strong environment for fintech firms to start up and scale. Venture capitalists continue to show a strong interest in the sector with deal volume up to 96 from 93 in 2015 even as value decreased 36% in the period.

In Europe, total fintech investment dropped 80% from $10.9 billion in 2015 to $2.2 billion in 2016.  Despite this, transaction volume remained relatively resilient with 318 deals completed during the year and we also saw a rise in European VC funding from $1.2 billion to $1.4 billion over the same period.

Commenting on the findings, Warren Mead, Global Co-Lead Fintech, KPMG, said:

 “2015 was an investment high and we are now seeing fintechs starting to gain scale as a result of that funding. This meant investors paused for breath in 2016 to see which fintechs are likely to emerge as the winners before deciding where to place their bets.

 “As a result, Europe saw a significant fall in funding which was also due, in part, to Brexit related uncertainties in the UK. Despite this, the UK Government and regulator have indicated they are committed to supporting and promoting the fintech sector and London remains a dominant force with the European Fintech market – 5 of the top 10 European fintech VC deals happened here last year.

 “If 2015 was an investment party, then in 2016 the Shoreditch hipsters got back to work – the hard slog to success starts here.”

 Outlook strong for 2017

The report clearly highlights areas for optimism for 2017 and beyond. The Payment Service Delivery Directive 2 (PSD2) is going to be a game changer in Europe with huge demand for niche fintech companies who can create specialised offerings that might not be profitable without the open data mandate.

Insurtech is also expected to be an attractive area of investment in 2017, with many insurance companies looking to play catch-up with the advances already made in the banking and financial services sectors.

Growing applications of innovative technologies like wearables, the Internet of Things and artificial intelligence are also likely to spur further investment.   There is also likely to be increasing participation of tech giants in the fintech sector.

Warren Mead added:

 “Whilst global investment is down, fintech remains an attractive proposition as traditional financial services face pressure to cut operational costs and improve customer propositions. 2017 has already seen some significant deals like Funding Circle who raised another $100m. The Moneygram deal is also evidence of what I predict will be a growing trend of fintechs entering the traditional finance space.

 “I also anticipate we will see more consolidation through 2017, particularly in the more mature fintech areas of payments and P2P lending.

 “In the UK, the Government and regulators have demonstrated that they are committed to supporting and promoting the sector. As well as launching the world’s first Regulatory Sandbox, the FCA has created fintech bridges with Australia, Singapore, Korea and China to strengthen regulatory collaboration and help fintechs scale internationally.

 “Nevertheless, questions remain following the 2016 Brexit vote, particularly regarding access to talent and EU passporting.”

 Key 2016 annual highlights

 Total 2016 fintech funding declined to US$24.7B from US$46.7B in 2015, while deal activity dropped from 1,255 to 1,076.

  • VC funding to fintech companies reached a record US$13.6B compared to US$12.7B in 2015, with 840 deals recorded.
  • Overall fintech deal funding in Asia grew slightly year over year, reaching a new record high of US$8.6B invested compared to US$8.4B in 2015. 3 mega-rounds accounted for over half of this total.
  • Both overall funding and VC funding to fintechs declined in the US, with totals of US$12.8B and US$4.6B respectively.
  • Corporate VC investment in fintech rose for the seventh straight year, reaching 145 deals, US$8.5B in 2016.

 Key Q4’16 highlights 

  • Quarterly VC funding to fintech companies increased from US$1.9B to US$2.1B between Q3’16 and Q4’16, yet remained weak compared to early year quarterly results.
  • Asia VC funding rebounded in Q4’16 to US$680M after reaching a low of US$200M in Q3’16, primarily driven by a US$384M+ mega-deal in the quarter.
  • VC investment in the Americas and the US fell in Q4’16, to US$1.1B and US$900M respectively. Canada bucked the region’s downward trend, reaching a new high of US$138Min fintech VC investment.
  • Europe-based VC investment remained relatively stable in Q4’16, with US$319M in fintech investment. Over the same period, the number of VC-based fintech deals increased from 52 to 63 deals.

 *Note: All figures cited are in USD; data for the report provided by PitchBook.

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Shares rise as cyclical stocks provide support; yields climb

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Shares rise as cyclical stocks provide support; yields climb 1

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – A gauge of global equity markets snapped a 3-day losing streak to edge higher on Friday, as the recent selling pressure on high-flying big technology-related stocks eased even as investors showed a preference for economically sensitive cyclical sectors.

Oil prices fell from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather, while the U.S. Treasury yields extended their recent rise.

The MSCI’s global stock index was up 0.47% at 681.88, after losing ground for three consecutive sessions.

On Wall Street, stocks steadied as cyclical sectors edged higher while tech names made modest advances after concerns about elevated valuations led to some selling in recent sessions.

“What we saw (this week) represents a market that is tired and may not do very much. So we are headed for some sort of a pullback, but I don’t think we’re there just yet,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“Investors are not really pulling out of the market, but they are becoming more cautious. It already has factored in another good positive earnings season.”

The Dow Jones Industrial Average rose 119.97 points, or 0.38%, to 31,613.31, the S&P 500 gained 12.93 points, or 0.33%, to 3,926.9 and the Nasdaq Composite added 92.58 points, or 0.67%, to 13,957.93.

The S&P 500 technology and communication services sectors, housing high-value growth stocks, were among the smallest gainers in early trading, while financials, industrials, energy and materials rose more than 1%.

European shares edged higher on Friday as an upbeat earnings report from Hermes boosted confidence in a broader economic recovery. The pan-European STOXX 600 index was 0.64% higher.

U.S. Treasury yields on the longer end of the curve rose to new one-year highs on Friday as improved risk appetite boosted Wall Street, while the yield on 30-year inflation-protected securities (TIPS) turned positive for the first time since June.

Core bond yields have pushed higher globally, led by the so-called reflation trade, where investors wager on a pick-up in growth and inflation. Growing momentum for coronavirus vaccine programs and hopes of massive fiscal spending under U.S. President Joe Biden have spurred reflation trades.

The benchmark 10-year yield was last up 5.1 basis points at 1.338%, its highest level since Feb. 26, 2020.

Oil prices retreated from recent highs for a second day on Friday as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.

Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude oil production and 21 billion cubic feet of natural gas, analysts estimated.

Brent crude futures were down 28 cents, or 0.44%, at $63.65 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 66 cents, or 1.09%, to $59.86.

Copper jumped to its highest in more than nine years on Friday and towards a third straight weekly gain as tight supplies and bullish sentiment towards base metals continued after the Chinese New Year.

Spot gold XAU= was down 0.58% at $1,785.71 an ounce.

The dollar lost ground on Friday, extending Thursday’s decline as improved risk appetite sapped demand for the safe-haven currency and drew buyers to riskier, higher-yielding currencies. The dollar index was off 0.295%.

Bitcoin hit yet another record high on Friday, hitting a market capitalization of $1 trillion, blithely shrugging off analyst warnings that it is an “economic side show” and a poor hedge against a fall in stock prices.

(Reporting by Saqib Iqbal Ahmed; Editing by Nick Zieminski)

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Oil falls after surging past $65 on Texas freeze

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Oil falls after surging past $65 on Texas freeze 2

By Stephanie Kelly

NEW YORK (Reuters) – Oil prices fell on Thursday despite a sharp drop in U.S. crude inventories, as market participants took profits following days of buying spurred by a cold snap in the largest U.S. energy-producing state.

Brent crude fell 41 cents, or 0.6%, to settle at $63.93 a barrel. During the session it rose as high as $65.52, its highest since January 2020.

U.S. West Texas Intermediate (WTI) crude futures fell 62 cents, or 1%, to settle at $60.52 a barrel, after earlier reaching $62.26, the highest since January 2020.

Brent had gained for four straight sessions before Thursday, while WTI had risen for three.

“The market probably got a little bit ahead of itself,” said Phil Flynn, a senior analyst at Price Futures Group in Chicago. “But make no mistake, this selloff in oil doesn’t solve the problems. The problems are going to persist.”

Though some Texas households had power restored on Thursday, the state entered its sixth day of a cold freeze. It has grappled with refining outages and oil and gas shut-ins that rippled beyond its border into Mexico.

The weather has shut in about one-fifth of the nation’s refining capacity and closed oil and natural gas production across the state.

“The temporary outage will help to accelerate U.S. oil inventories down towards the five-year average quicker than expected,” SEB chief commodities analyst Bjarne Schieldrop said.

Prices dropped despite a decrease in U.S. oil inventories. Crude stockpiles fell by 7.3 million barrels in the week to Feb. 12, the Energy Information Administration said on Thursday, compared with analysts’ expectations for an decrease of 2.4 million barrels.

Crude exports rose to 3.9 million barrels per day, the highest since March, EIA said.

“The big nugget was the big jump in exports of crude oil,” said John Kilduff, partner at Again Capital in New York. “We’ll have to see what happens with that next week weather in Texas, but I have been looking for a pickup there for a while.”

Oil’s rally in recent months has also been supported by a tightening of global supplies, due largely to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the OPEC+ grouping, which includes Russia.

OPEC+ sources told Reuters the group’s producers are likely to ease curbs on supply after April given the recovery in prices.

(Additional reporting by Yuka Obayashi in Tokyo; editing by Emelia Sithole-Matarise, Steve Orlofsky, David Gregorio and Jonathan Oatis)

 

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GameStop frenzy sparks fresh investment in stock-trading apps

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GameStop frenzy sparks fresh investment in stock-trading apps 3

By Jane Lanhee Lee

OAKLAND, Calif. (Reuters) – The recent trading frenzy centered on GameStop Corp and other “meme” stocks is sparking a wave of investor interest in start-ups aiming to mimic the success of Robinhood Markets Inc, whose no-fee brokerage app has helped drive a trading boom.

Public.com, a direct competitor to Robinhood that boasts a host of blue-chip backers, said on Wednesday it had raised $220 million, valuing it at $1.2 billion on the private market. Another well-heeled rival, Stash, said earlier this month it had raised $125 million, while Webull Financial LLC, backed by Chinese investors, is also raising fresh funds after enjoying an influx of new users.

Robinhood, meanwhile, raised some $3.4 billion in the midst of the GameStop furor to assure its stability amid rapid growth and demands by its trading partners that it post more collateral.

The fresh investments are coming even as government regulators ramp up scrutiny of Robinhood and others involved in the GameStop trading. A U.S. congressional committee on Thursday grilled the chief executive of Robinhood and a YouTube streamer known as “Roaring Kitty,” among others, as it probes possible improprieties, including market manipulation.

Robinhood came under stiff criticism from some quarters for restricting trading in GameStop and other shares at the height of the frenzy, a move the company says it was forced to make due to requirements of partners that settle trades. It has also drawn scrutiny for a business model that relies on payments for sending trading business to partner brokerages, a practice Public.com and some other rivals are pledging to avoid.

Investors see rich opportunity in bringing easy stock trading to smartphone users globally, though the companies say they are also cognizant of the risks.

Stash, which doubled its active accounts to over 5 million by the end of last year, operates with only four trading windows a day to discourage rapid speculative trading, it said.

U.K.-based Freetrade.io told Reuters by email that its user numbers last year grew six-fold to 300,000 and by mid-February had reached 560,000. It said it had raised a total $35 million, including from crowd-funding rounds from over 10,000 customers.

But it does not offer margin trading or riskier offerings. “These products encourage investors to behave as if they are gambling or speculating rather than investing,” a Freetrade.io spokesman said.

Interest in trading apps is soaring globally. In Mexico, trading app Flink launched seven months ago and already has a million users, according to co-founder and chief executive Sergio Jimenez. He said Mexicans can buy fractions of U.S. stock through the platform, but not Mexican stocks – yet.

“Ninety percent of them are investing for the first time,” said Jimenez.

Flink raised $12 million in a funding round in February led by Accel, an early investor in Facebook. Accel is also an investor in Public.com and Berlin-based Trade Republic Bank Gmbh, which allows European retail investors to buy fractions of U.S. stocks, according to Accel partner Andrew Braccia.

“The bigger story here is there’s just this global trend of… accessibility,” he said.

Start-up investors also see opportunity in the infrastructure behind the trading apps. DriveWealth, which serves Mexico’s Flink and 70-plus other online trading apps around the world, has hundreds more partnerships in the pipeline, according to founder and chief executive Bob Cortright. DriveWealth provides the technology to power digital wallets and trading apps, and also provides clearing and brokerage service to its business partners.

“This is this is only beginning,” said Cortright. “The fact that you could have a smartphone in your hand in India, for instance, and buy $10 worth of Coca-Cola stock at an instant, that’s pretty game-changing.”

Venture capital investments in U.S. fintech companies hit a record last year with $20.6 billion invested, according to data firm PitchBook. Globally, around $41.4 billion was invested in fintech companies in 2020.

(Reporting By Jane Lanhee Lee in Oakland; Editing by Jonathan Weber and Dan Grebler)

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