VC Investment in Fintech Rises to $1.2 Billion in US: KPMG

Robo-advisory promises to be a ‘hot’ investment area in second quarter

U.S. venture capital investment in fintech companies rose to $1.2 billion in the first quarter, the highest activity since last year’s first quarter, according to KPMG International’s Pulse of Fintech report, released Thursday.

Non-VC fintech investment in the U.S. reached $300 million, resulting in a total of $1.5 billion in fintech investment in the U.S. for the quarter.

“The U.S. leads the rest of the world in the total value of fintech investment due to the large amount of funds available to invest in the market, with investors focusing on late-stage, clear front-runner fintech companies,” said Anthony Rjeily, KPMG’s U.S. financial services fintech practice co-leader, said in a statement.

Wealth management is experiencing the effects of sundry innovations in technology and perception shifts.

In Europe, fintech venture activity in the first quarter soared to its highest tally in years at $610 million, thanks to several huge rounds, KPMG reported.

Globally, fintech investment sagged, with total global investments at $3.2 billion, down from $4.2 billion last quarter. Though not a steep drop, it was well below earlier outlier quarters, the report said.

Global fintech M&A dropped to $920 million in deal volume in the first quarter, down from $1.8 billion in the fourth quarter, and less than half the $4 billion in funding in the first three months of 2016.

In terms of volume, the report said venture financing now appeared to be oscillating around early 2014 or full-year 2013 levels, after falling from 2015 peaks. However, at $2.3 billion, venture capital investment remained on the historically high end in the first quarter.

According to the report, the global market is experiencing growth in the breadth of fintech technologies and applications.

“Payments and lending continue to attract the most funding globally, although we’re seeing increasing interest in a variety of technologies,” Brian Hughes, national co-lead partner in KPMG U.S. venture capital practice, said in the statement.  

“In addition to continued growth in regtech and insurtech, areas such as artificial intelligence, machine learning and Internet of Things are gaining increasing investor attention.”

The report said robo-advisors and other hybrid advisory services continued to gain momentum in the first quarter as financial institutions and banks recognized their value in providing better customer experiences and targeted services for both millennials and wealthy individuals.

Next quarter, it said, robo-advisory, artificial intelligence and data analytics look to be “hot investment areas.”

For financial advisors, change is coming with the rise of artificial intelligence and shifts in power among robo-advisors. Check out the nine best ones here.

Other Key Findings

KPMG reported that private equity firms in the U.S., including not-technology-focused ones, are proving robust actors in the late-stage fintech arena, with $1.2 billion in total deal value across 11 deals in the first quarter.

During the same period, however, U.S. fintech M&A got off to a slow start at just $200 million across 24 deals.

The West Coast continued to account for the largest concentration of U.S. fintech investment, with 67.6% of total value of deals in the first quarter and 39% of the total number of deals.

Outside the U.S., a number of cities around the world are conducive to fintech innovation.

According to the report, global median venture capital deal size for late-stage deals fell in the January-to-March period to $10 million, compared with the 2016 average of $15 million.

At the same time, investment in regtech continued its upward trajectory with $219 million across 26 deals, while insurtech activity remained on par with 2016 averages at 46 deals and $243 million invested.

--- Check out World’s Best Cities to Launch a Fintech Firm: Deloitte Report on ThinkAdvisor.

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