UK tops US for FinTech investment, KPMG study shows

14 August 2018 Authored by Consultancy.uk

A new report has shown that investment rates in the global FinTech scene have hit record levels in the first half of 2018, as financial institutions look to tackle complex problems with the leveraging of innovative new technologies. Britain represents a leading global presence in the market, surpassing the value of investment in US FinTech by almost $2 billion.

FinTechs across various industries are exploring ways in which to pickoff high value segments incumbents, with blockchain projects being increasingly well-funded. The threat and opportunities, created by disruptive FinTech firms has not been lost on market incumbents – with a whole host of actors, from consultancy firms, accelerators seeking to get in on the action. As a result, investment in the segment is booming. The first half of 2018 saw the global value of investment in FinTech hit $57.9 billion over the course of six months. The spike of value from the 875 VC, PE and M&A deals completed has already exceeded last year’s annual total.

Looking more deeply at the first half’s figures, researchers from KPMG have meanwhile shown that the UK topped the US in terms of investment in financial technology in the first half of 2018 – something which is a key part of the country’s Brexit strategy, as it bids to make itself attractive to investment to avoid a major economic slump as it begins post-EU life in 2019. To that end, the Big Four firm’s ‘Pulse of Fintech’ report found that the UK also topped Europe for FinTech investment, accounting for more than half of the total investment, which stood at $26 billion.

Global venture activity in regtech

The biggest contributor in the continent, the UK attracted £12.3 billion ($16.1 billion) to its shores in the first half of 2018, almost $2 billion more than the US’ $14.2 billion haul. This was thanks to four of Europe’s top ten deals taking place in the UK, with the respective size of the four deals helping to take the UK’s value contributed to the overall European pot past the half-way mark. Vantiv’s $12.9 billion acquisition of Worldpay was the UK’s largest FinTech investment addition during 2018’s first half, while digital banking firm Revolut ($250 million), peer-to-peer finance firm Flender ($60 million) and wealth management firm Moneyfarm ($54 million) also completed some of the continent’s biggest FinTech deals.

Commenting on the figures, KPMG FinTech Global Co-Lead Anton Ruddenklau said that 2018 had seen the FinTech poised firmly on the front foot, as banks and financial entities look to save on operational costs and boost customer service offerings. He explained, “In addition to the bullish levels of investment the UK has attracted, our FinTech sector has also benefited from the UK Government’s continued support with the launch of the Fintech Sector Strategy.”

RegTech

At a global level, the $57.9 billion being invested across 875 deals represents a record high for the FinTech scene. The sum already represents a 34.2% rise from 2017, when FinTech investment stood at just $38.1 billion for the whole year, with little evidence that investor appetite is dulling in the second half of 2018. KPMG’s analysts anticipate that FinTech investment in Europe will remain strong until the turn of the year, while the professional services company predicts that RegTech, wealth management and digital identification verification will also see a distinct increase in spending.

Top 10 global fintech VC, PE and M&A deals in H1'18

Regtech investment reached $1.37 billion in 2018’s first half, and like FinTech, already surpassed 2017’s annual totals. Over the past 10 years, financial institutions have faced an ever-increasing regulatory burden, with the cost of compliance for the likes of GDPR skyrocketing for many financial institutions. As a result, even though fewer deals have occurred this year, at 26 compared to 54 for the whole of 2017, the total value of venture activity in RegTech currently rests at $233 million.

Fabiano Gobbo, Global Leader, Financial Risk Management at KPMG International, said, “The regulatory landscape has evolved significantly in recent years, with the introduction of GDPR, PSD2 and MiFIDII/MIFIR creating more opportunity for risk, regulatory and compliance gaps to emerge. As a result, we are seeing financial institutions increasingly turning to RegTech to fill compliance gaps, save on the costs of compliance, get ahead of requirements before deadlines and detect enterprise risk before the regulators. This has led to an explosion in investment in RegTech firms over the past couple of quarters.”

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