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Global VC-backed fintech funding declines, but Asia investment reaches new high: KPMG and CB Insights

"Fintech funding is down this quarter, but it in no way reflects a lack of interest among investors, particularly corporates who see fintech as a way to leapfrog ahead of the competition," said Brian Hughes, co-leader, KPMG Enterprise Innovative S...

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Updated: Nov 21, 2016, 12.29 PM IST
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While the number of VC-backed fintech deals dropped to a five-quarter low in Asia, funding increased by 50% on a quarter-over-quarter basis to reach  $1.2 billion.
While the number of VC-backed fintech deals dropped to a five-quarter low in Asia, funding increased by 50% on a quarter-over-quarter basis to reach $1.2 billion.
NEW DELHI: After quarterly fintech investment to VC-backed companies peaked to more than $5 billion in 2015, investors continue to take a much more cautious approach to fintech investments this year.

According to the Pulse of Fintech, the quarterly report on global fintech VC trends published jointly by KPMG International and CB Insights, funding fell 17% in Q3'16. Overall global investment in fintech companies across both venture-backed and non-venture-backed companies totaled at $2.9 billion in Q3.

The Q3 saw VC-backed fintech funding drop 17% to $2.4 billion, while deal activity fell 12% to 178 deals.

KPMG International and CB Insights will discuss the report, investment trends and key players in fintech during a live webinar on 8 December.

"Asia outpaced North America in terms of fintech funding, this quarter," says Warren Mead, Global co-leader of Fintech, KPMG International. "The question is whether Asia will continue to set the pace headed into 2017. With the diversity of investments and widespread support for the growth of fintech hubs in the region, it's a very distinct possibility."

Anand Sanwal, CEO of CB Insights, said, "While we continue to see significant investment into fintech companies globally, the euphoria for mega-deals that we saw into the latter half of 2015 has waned. Total investments to key areas like marketplace lending and blockchain technology have both seen declines heading into the tail-end of 2016."

Neha Punater, Partner, Fintech, KPMG in India said, "The Indian Fintech sector is going to witness a renewed interest in payments in wake of the demonetization measures viewed last week. We have seen many banks and financial institutions exploring potential POC and partnerships with Fintech in areas beyond retail banking i.e. SME lending, wealth management, blockchain etc."

Highlights from the Pulse of fintech
Global fintech mega-rounds fell to a new low in Q3'16. Asia saw $50 million fintech rounds have stayed level for the fourth quarter, while Europe has not registered a single $50 million round to a VC - backed fintech company in 2016 so far.
VC-backed global fintech deal fell for the second consecutive quarter, marking its lowest level since Q2'14. At the current run rate, the total annual deals are projected to drop from 2015's peak high.
Next-gen payments has attracted $1.2 billion in 2016 VC-backed funding (year-to-date). The top 20 deals, including Affirm, Mobikwik and One97, raked in 67% of the total funding to payments technology companies in the first three quarters.

Asia quarterly fintech funding tops US
While the number of VC-backed fintech deals dropped to a five-quarter low in Asia, funding increased by 50% on a quarter-over-quarter basis to reach $1.2 billion. Year-to-date results suggest Asia-based fintech investment for 2016 could top last year's peak investment results.

Corporates stay active in fintech
Corporates participated in 30% of global VC-backed fintech deals for the second consecutive quarter in Q3'16, driving a significant amount of fintech deals activity globally. Citigroup, Banco Santander and Goldman Sachs have made over 20 fintech investments in the past five quarters, while a host of insurers have launched corporate venture arms.

"Fintech funding is down this quarter, but it in no way reflects a lack of interest among investors, particularly corporates who see fintech as a way to leapfrog ahead of the competition. In Q3, corporate venture capital participation in global deals to VC-backed fintech companies reached 30 percent for the second consecutive quarter," said Brian Hughes, co-leader, KPMG Enterprise Innovative Startups Network and Partner, KPMG in the US. "This interest will continue to grow as corporates are looking to take advantage of the opportunities fintech provides."

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