Venture capital backing for fintech firms hits record in 2016

Overall funding for fintech sector falls as M&A activity declines during 2016

In Europe venture capital funds invested $1.4bn   in fintech firms last year, compared with $1.2bn  in 2015. Photograph: iStock

In Europe venture capital funds invested $1.4bn in fintech firms last year, compared with $1.2bn in 2015. Photograph: iStock

 

Fintech companies are getting more venture capital backing than ever even as overall funding for the sector declines.

A report by KPMG on funding in the global fintech sector found venture capital funding rose to $13.6 billion (€12.9bn) in 2016, up from $12.7 billion (€12.07bn) in 2015, with a total of 840 deals done.

However, a fall-off in M&A activity in fintech led to a decline in overall fintech funding to $24.7 billion (€23.4bn) from a peak of $46.7 billion (€44.3bn) the year before.

In Europe, venture capital funds invested $1.4 billion in fintech firms last year, compared with $1.2 billion in 2015, notching up a total of 242 deals. Overall investment in the region declined sharply to $2.2 billion from almost $11 billion a year earlier as deal values dropped.

“Two notable trends in 2016 were collaboration – with fintechs learning to work with major banks – and the rise of China to become a fintech powerhouse, both in investment flow and deal activity,” said KPMG Ireland’s fintech lead Anna Scally.

She said the Irish fintech market also remained strong throughout the year.

For the coming year KPMG’s report said the outlook remained positive, with insurtech set to continue the growth trend seen in 2016, and the use of wearables, the Internet of Things and artificial intelligence expected to spark further investment.

“On the European side we are also likely to see fintechs focus on the opportunities presented by Payments Services Directive 2 (PSD2) which is expected to be a game-changer,” Ms Scally said.