Fintech VC Funding 1H 2019

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Fintech VC Funding 1H 2019

“Global investment in financial technology (fintech) ventures fell sharply in the first half of 2019.” That’s a headline getting a lot of attention from a recent Accenture report. Dig a little deeper, however, and the space is actually still in good shape.

Here’s a breakdown on the state of global VC investment in fintech for H1 2019 (data courtesy of Accenture):

  • Value of deals: The total value of fintech deals worldwide declined to $22 billion, down 29% y/y for the six months ending June 30th.

    The culprit: the tough comp of Ant Financial’s $14 billion fundraising in May 2018.
  • Ex the Ant Financial deal: global fintech investments were up 28% y/y in the first half of this year.
  • Number of deals: the number of fintech deals edged up 2% to 1,561 globally.
  • Biggest fintech market: the US continues to be the largest fintech market, with the value of deals up 60% y/y to $12.7 billion in H1 2019. The number of transactions was essentially unchanged (564 vs. 563).
  • Geographic differences: Fintech funding grew in many European countries, particularly in the UK where investment almost doubled to $2.6 billion. The number of deals also rose by 25% to 263 in the UK, with investors interested in challenger banks and payment companies. 

    As for other European countries, investments in German fintech companies more than doubled to $829 million in H1 2019, while fintech investments in Sweden more than quadrupling to $573 million. Fintech companies in France also raised $423 million in the first half of this year, up 48% y/y.

    By contrast, Asia was mixed. Fintech investments in China fell to $820 million in the first half of the year versus $17.7 billion during the same period last year. Even without the Ant Financial deal it was down 79% in China in the first half. By contrast, the value of deals quadrupled to $453 million in Singapore and more than tripled to $401 million in Australia.
  • Global fintech investment by product: most funding went to payments (28%), lending (25%), and insurance (14%) companies. Current accounts (11%), markets (3%), wealth management (3%), back office operations (3%) and other (12%) followed.

Here are our takeaways:

#1: This year hasn’t had a huge fintech deal like Ant Financial last year, but absent that massive raise fintech investment around the world is still growing by double digits. This growth reflects strong investor confidence in the space given that public equity valuations peaked earlier this year. Interest in fintech companies also likely benefited from a relatively calm stock market in the first half of this year. 

Moreover, all this funding is one more explanation of why public market Financials are a tough bet just now. All this confidence in the VC space contrasts how poorly the group trades.

#2: That the number of fintech transactions was flat in the US, but funding still grew by double digits shows deals here are growing larger. That is likely reflective of the space having matured over the past few years. Additionally, this trend is not unlike what we’ve highlighted in our past reviews of VC funding in the US this year. As we get further into the economic expansion, VCs may be more comfortable contributing capital towards established fintech companies rather than riskier, newer startups.

#3: Trade relations clearly hurt fintech funding in China, with both deal values and transactions falling notably even without including Ant Financial’s raise. Tech has been a hot button issue between the US and China, with the former restricting some of the latter’s tech companies. With the Chinese government’s tech ambitions, hopefully this is one more area of a ripple effect that will encourage China to get a deal done.

Bottom line: VC investing in fintech startups is still growing at a healthy clip. It faces three key headwinds in the back half of the year, however: a more volatile stock market, growing fears of an impending global recession, and ongoing trade wars.

Sources: https://newsroom.accenture.com/news/global-fintech-fundraising-fell-in-first-half-of-2019-with-decline-in-china-offsetting-gains-in-the-us-and-europe-accenture-analysis-finds.htm

https://www.scmp.com/business/companies/article/3022900/global-fintech-investments-nosedive-chinese-fundraising-falls