Railsbank news round-up: Fintech enjoys very strong 2019
Week 8: a brief look back at some of the fintech news that’s not always picked up.
Fintech has stomping 2019
The big fintech story last week was news that the sector had enjoyed a stomping 2019.
Global fintech investment in 2019 fell just shy of 2018's record with $135.7bn invested across 2,693 deals.
Cross-border M&A remained strong at $54.2bn in deal value and fintech deals by global tech giants were on the rise with $3.5bn invested across 46 deals in 2019.
The figures are courtesy of KPMG’s Pulse of Fintech H2'2019, a bi-annual report on global and regional fintech investment trends.
The report concluded that the main theme for 2019's global fintech market was diversity, with fintechs and fintech investment expanding across product, sector and geographical borders.
The expanding definition of fintech and its increasing reach and interconnectivity helped keep fintech investment robust despite the global economic and trade challenges that hindered growth in 2019, including concerns related to Brexit and ongoing trade tensions between China and the US.
The focus on cross-border transactions will likely continue as maturing fintechs look to grow and achieve scale and the big tech giants look to extend their reach and gain market share in less developed markets.
Many niche areas of fintech continued to grow and evolve throughout 2019:
- proptech investment grew from $1.9bn in 2018 to a record $2.6bn in 2019;
- fintech-focused cybersecurity investment more than doubled from $316.9m to $646.2m;
- blockchain and cryptocurrency investment continued to fluctuate, falling from $6.3bn to $4.7bn year-over-year (although Facebook's announcement of Libra and the People's Bank of China's announcement of accelerated research and experimentation on digital currency and electronic payments have helped breathe new life into the space).
"Over the past year, the lines have really started to blur between financial services and non-financial services – with fintech companies helping to bridge the gap," said Anton Ruddenklau, Global Co-leader of Fintech, KPMG International. "It's a trend that will only continue into 2020. Just look at how the big tech giants are working with both traditional financial institutions and fintechs in order to seamlessly integrate financial services within their ecosystems, and at how the larger fintechs and financial institutions are looking at ways to broaden their offerings into adjacent areas."
Other key global highlights:
- global corporate VC investment participation rose during every quarter of 2019, leading to $16.7 billion in total annual VC invested with CVC involvement
- CVC-related deal volume was also robust, with 553 deals over 2019, including 166 in Q3'19 – the second-highest quarter ever in terms of CVC fintech deals volume after Q2'18;
- number of fintech deals by global tech giants – including Alibaba Group, Alphabet, Apple, Baidu, IBM, Microsoft and Tencent – increased for the fifth straight year, with $3.5bn invested across 46 deals in 2019.
- cybersecurity related fintech investment more than doubled year-over-year, from $316.9 million to $646.2 million.
- proptech investment rose to a record high of $2.6 billion in 2019 from $1.9 billion in 2018.
Regional Highlights - US
The US set a new record for fintech funding in 2019, with $59.8 billion in investment compared to $58 billion in 2018. Corporate investment in the US was very strong in 2019, with corporates investing $6.9bn in fintech – a significant increase compared to $5.9bn in 2019.
Fintech investment in the Americas region dropped slightly in 2019 with $64.2bn in fintech investment compared to $65.5bn in 2018. While the US accounted for a large majority of the fintech investment seen in the Americas, other countries also attracted large deals, including the $821m acquisition of Canada's Solium by Morgan Stanley (rebranded Shareworks by Morgan Stanley) and the acquisition of Argentina-based Prisma Medios de Pago for $725m.
Despite the small decline in annual funding, fintech VC investment in the Americas achieved two consecutive quarterly record highs in Q2'19 ($5.6bn) and Q3'19 ($5.9bn). In terms of fintech funding, Brazil saw a very strong increase with $890m invested compared to $567m in 2018.
Europe set a new record for fintech funding - attracting $58.1bn in investment compared to $43.4bn in 2018. Germany saw a very strong year of fintech investment at $1.6bn – led by the $470m raise by N26 in Q3'19. France also saw a banner year for fintech with $1.8bn of total investment.
In 2018, Asia saw a massive high of fintech investment, primarily due to the record-breaking $14bn raise by Ant Financial. When compared to all years prior to 2018, fintech investment in Asia remained relatively steady in 2019 with $12.9bn invested. India saw a record-breaking $3.8bn of fintech funding in 2019, driven by a record Q4'19 ($2.3bn) which included Paytm's $1.7bn raise. Australia also saw a record of $1.9bn in fintech funding during 2019, while Singapore saw $576m in investment.
In 2020, the lines are going to continue to blur between financial services and non-financial services – with big techs like Alibaba, Tencent, Google and others continuing to look for ways to integrate financial services within their ecosystem of offerings to their customers.
Integration will be a big priority and the unbundling of financial services that has occurred over the past few years will likely start to reverse as fintechs, traditional financial institutions, and big techs look to provide more value and more seamless experiences to their customers.
"2020 is going to be an exciting and pivotal year for fintech, particularly as we start to see the impact of the digital banking licensees in Hong Kong (SAR), Australia and Singapore launching and endeavouring to scale, as well as other markets following suit," said Ian Pollari, Global Co-Leader of Fintech, KPMG International. "In addition, a number of companies from outside of financial services are working to get into parts of the financial services value chain – either directly or through partnerships – and they're going to blur the lines of financial services even more. As a result, we expect to see bolder responses from incumbent financial institutions in terms of partnerships, as well as strategic investments and M&A."
Key Predictions for 2020
The big tech giants like Alphabet, Alibaba and Tencent will increase their focus on the fintech space, both working to increase their reach into developing markets and to increase the value and seamless of their ecosystems to their customers.
Maturing fintechs and challenger banks will continue to expand the breadth of their service offerings beyond their initial niche focus areas and make strategic moves across international borders.
The unbundling of financial products will begin to reverse course as consumers increasingly seek a primary interface to manage all of their financial affairs on a holistic level.
Cybersecurity-focused fintechs will become more attractive as traditional financial institutions shift from building to buying cyber solutions, particularly in areas like fraud, security, and identity management.
Consolidation is going to increase, with bigger and bolder M&A deals becoming the norm in more mature fintech sub-sectors.
Building on the momentum of Hong Kong (SAR) and Australia, more countries in the Asia Pacific region will develop digital banking regimes and use digital banking licenses to guide digital bank efforts.
The focus on open data opportunities will move beyond banking and into other aspects of the financial services industry.