FinTech and RegTech enjoy strong investment in 2018
Investment activity in the FinTech segment has continued apace, topping $30 billion in the second quarter of this year. Amid this, M&A activity has seen a boost too, as PE firms enter the fray and tech firms looked to bolster their capabilities.
The growing importance of FinTechs and RegTechs to securing a healthy and competitive future across businesses in the financial arena has seen investment in the sector spike dramatically. With the world’s leading platforms in the fields now counting revenues in the billions, it has predictably triggered something of a feeding frenzy in terms of merger and acquisitions activity in the sphere.
The latest edition of KPMG Enterprises’ ‘FinTech Pulse’ report, based on data from PitchBook, shows that investment in financial technology firms has continued to see significant growth to that end. While the number of deals has stagnated at around 450 per annum over the past three years, the second quarter of 2018 saw a particularly strong performance, with total value exceeding $30 billion, following a strong performance at the start of the year when total value hit $25 billion.
Due to this, the first half of 2018 well outstripped the previous year in total value, with 2017 a relatively slow year in terms of overall activity. This suggests a continuation of a growing M&A trend, as potential buyers are valuing quality over quantity, and are willing to pay a premium to support that commitment. It is worth bearing in mind, however, that the massive results of 2018 were partly skewed by two mega investment rounds, with Ant Financial’s $14 billion late-stage deal and the $12.86 billion acquisition of WorldPay.
The segment has also seen activity from large tech firms, Anton Ruddenklau Global Co-Leader of FinTech KPMG International said, adding, “We continue to see technology giants around the world explore, collaborate and invest in FinTech-related opportunities. In the US, we see the likes of Amazon, Microsoft and Google in an arms race of sorts – they all have hired senior leaders to drive expansion in this space and are actively recruiting FinTechs onto their cloud platforms.”
Among venture capital circles, deal activity has been relatively stable, at around 350 investments. Interest among respondents has largely remained in its nascent stage, as Angel/Seed investments picked up from the previous quarter with a slight increase in the segment, following a number of years of decline, while later stage venture capital investments have been flat.
FinTech and RegTech
The FinTech segment differs considerably from the wider venture capital landscape, in this respect, as Angel/Seed rounds have slowed in the broader market. The segment’s strength throughout the lifecycle of start-ups in part reflects the stronger market proposition of the industry, which offers quantifiable benefits.
Similarly, venture capital investment in the RegTech segment has seen a slight increase on KPMG’s previous research, with 26 deals in the first half of 2018 suggesting the sector may outpace the 54 registered last year. In terms of value, meanwhile, capital invested in RegTech during the first half of 2018 has already surpassed all of 2017. Should it keep up this pace for the remainder of 2018, it will set a record for the segment.
Remarking on the reasons for investment, Fabiano Gobbo Global Leader, Financial Risk Management 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.”
