In Q3 the UK attracted US$636m of global fintech investment while Europe as a whole attracted US$1.6bn compared to US$5bn in the US and over US$1bn in Asia.

 Total UK fintech funding roughly halved between Q2 and Q3’17 with total investment falling to US$636m from over US$1.2bn. Year-on-year the picture is far more positive as the unease around Brexit appears to have softened, Q3’16 saw just US$120m invested.

Looking at the spread of activity between countries and their capital cities, Paris and London respectively were host to 90 percent of the deal value in those countries. Germany did not follow this same trend with nearly half of the deal volume occurring outside Berlin.

Germany accounted for the largest share of fintech investment in Europe this quarter buoyed by the US$806 million secondary buyout of ConCardis. The UK, meanwhile, accounted for 7 of Europe’s largest deals, including US$100 million+ rounds to Prodigy Finance and Neyber.

Richard Gabbertas, Head of Financial Services regions, KPMG UK, comments: “London is the finance centre of the UK and has been for a long time so it’s only natural that it will attract a disproportionate amount of fintech activity but, I hope to see that change in time as other centres catch-up. Edinburgh, Manchester and other regional cities are making huge strides in developing promising fintech centres, diversifying and boosting the local job market. I hope that in the next few years we start to see more support, from government, corporates and investors for our budding regional fintech hubs.”

Globally, the US led fintech investment in Q3’17, with US$5 billion deployed across 142 deals. Europe and Asia lagged considerably behind the US, with Europe fintech deals accounting for US$1.66 billion of investment across 73 deals, and Asia accounting for US$1.21 billion across 41 deals.

Despite healthy investment activity, the volume of VC fintech deals dropped dramatically in Q3’17, particularly at the earlier deal stage. The number of angel and seed stage fintech deals plummeted to 67 for the quarter , a low not seen since Q1’13. This reflects the trend of investors focusing on larger deals and higher quality companies with proven business models.

“The fintech market continues to rapidly evolve with an increasing diversity of funding participation and sources, geographic spread and areas of interest,” says Murray Raisbeck, Global Co-Lead, KPMG Fintech. “We are seeing the emergence of fintech leaders who are looking to expand internationally to scale their platforms, as well as large technology giants moving into adjacencies to create new value for their customers.  This is a trend that is expected to continue and could force incumbent financial institutions to take bolder steps in response.”

Key Q3’17 Highlights 

  • Global fintech investment was US$8.2 billion in Q3’17, down from US$9.3 billion in Q2’17.
  • VC funding increased to US$3.3 billion invested across 211 deals, up from US$3.01 billion in Q2.
  • The median deal size for angel/seed stage deals at the end of Q3’17 stood at US$1.4 million – up from US$1 million in 2016, while the median deal size for early stage rounds was also up to US$5.5 million from US$5.1 million in 2016. The median deal size of late stage deals was even year over year at US$16 million.
  • While overall corporate VC funding has declined so far this year, the participation rate remains high.  Corporates have participated in 18 percent of all fintech VC deals globally (YTD)
  • Fintech venture-backed exit activity skyrocketed in Q3’17, almost tripling quarter over quarter from US$270 million to US$940 million. This reflects the second-best quarter on record for fintech exits.
  • Insurtech VC deals and investment are on track to reach record highs by end of the year. By the end of Q3’17, more than US$1.5 billion had been invested by VCs in insurtech across 179 deals, compared to US$1.8 billion across 203 deals in all of 2016.

Europe continues to make strong gains in the fintech space in Q3’17 

Total fintech investment in Europe dipped in Q3’17 to US$1.66 billion, from US$2 billion in Q2. VC funding was particularly strong in Q3 at over US$700 million. Median late stage fintech deal size for the quarter sat at US$17.3 million, well above 2016’s US$10.2 million.  Corporate VC investment in Europe has skyrocketed compared to 2016, with a record setting US$647 million already invested with CVC participation YTD. Corporate participation in fintech VC deals is also up dramatically – from 13 percent in 2016 to 20 percent in 2017 YTD.

“Investors globally are becoming more mature about their investments in fintech, even as the startups themselves mature,” explains Jonathan Lavender, Global Chairman, KPMG Enterprise. “Moving forward, we are going to see investors increasingly looking for companies to deliver value, and to demonstrate their ability to achieve results.” 

US accounts for vast majority of fintech investment in Americas during Q3’17 

While total fintech investment in the Americas dropped in Q3’17, it is important to note that Q2’17 included a significant outlier deal in the US$3.6 billion buy-out of Canada-based DH Corp.

The US drove the majority of investment in Q3’17, with US$5 billion invested, including six of the quarter’s top global deals. Unlike in Europe and Asia, first time financings in the US appear to be relatively strong, with the amount invested on track to potentially exceed 2016’s totals despite a drop in the number of deals.  Canada also saw a significant level of direct fintech investment activity, with US$312 million invested.

 Asia fintech investment rises to over $1 billion for first time in 2017 

Asia experienced a solid increase in fintech investment in Q3’17, with US$1.21 billion raised across 41 deals. VC funding was up considerably – accounting for just over US$1 billion in investment. China accounted for over half of Asia fintech investment at US$745 million. India investment dropped for the third straight quarter, with only US$87.7 million in VC invested.

Corporate participation in Asia fintech VC deals remained high at 22 percent of overall round counts, although actual direct investment has been quite minimal in 2017 with just US$840 million invested YTD in associated deal value. 

*Data for the Pulse of Fintech report provided by PitchBook.

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