Here’s everything you need to know about fintech investing and why it may be right for you.
Fintech is taking the world by storm, and investors are starting to notice. While 2016 was dubbed what some might say as “challenging” for the fintech market, overall investment in fintech totalled $24.7 billion, according to KPMG. That figure is impressive enough on its own, but it pales in comparison to the $46.7 billion invested in 2015.
Still, over the last several years, investment in fintech has been on the rise. For instance, in 2013 the market only saw $4.05 billion in investment. While there was a dip in 2016, the global market is expected to grow at compound annual growth rate (CAGR) of 54.83 percent between now and 2020, according to WiseGuyReports.
As such, investment in fintech is no doubt poised to grow, and those interested better hop on board now to witness the most growth in this booming market.
Investment in fintech: global market breakdown
As KPMG suggests, 2016 was a “challenging year for fintech investment,” with thanks to the Brexit vote and circumstances surrounding that outcome. The US presidential election was also a contributing factor, while there was also a slight slowdown in China.
More specifically, in the US, investment in fintech dropped to $12.8 billion in 2016–a significant decrease from $27 billion in 2015, the KPMG report states. The research firm highlights that the overall decrease in investments came from a decline in merger and acquisitions (M&A) and private equity deals, while venture capitalist (VC) deals soared to a new high of $13.6 billion compared to $12.5 billion the previous year.
That said, fintech deals in Asia were on the rise in 2016, reaching a new high of $8.6 billion compared to $8.4 billion in 2015. Fuelling that growth came in part due to three “mega-rounds” accounting for more than half that growth.
Meanwhile in Europe, fintech investment took a slight in 2016, with a total of $2.2 billion invested in 318 deals.
Still–there is good news for the fintech market. Global investment in fintech is poised to reach $46 billion over the next three years.
Investment in fintech: current market status
While it’s certainly good news that the fintech market is expected to grow and become a well established industry, currently the sector market is in a nascent stage. The relative immaturity of the market suggests that investors will see significant growth in this area.
For instance, the first quarter of 2017 in the fintech market saw $3.2 billion in global investments, as per KPMG’s Q1 edition of “The Pulse of Fintech.” Over in Europe, roughly $610 million in 67 deals has been invested, resulting in a record quarterly high, KPMG states. However, Asia has taken a step back, with $406 million in venture capital funds.
“In the US, the UK, China and other jurisdictions, fintech investors are starting to focus more on performance and return on investment than ever before – pressuring fintechs to demonstrate scalability and a clearer path to profitability,” Ian Pollari, Global Co-Leader of Fintech, KPMG International, said.
Pollari further stated that fintech companies are coming onto the scene in places one might not expect–like in Poland and Slovakia–which could be the surprising boost the fintech sector needs moving forward.
Moving into the end of 2017, a CB Insights fintech report for Q3 2017 highlights that global fintech funding dipped 25 percent during quarter from Q2 2017. That said, the report states “if the current run rate holds steady in Q4 2017, global fintech investment dollars and deal activity could top new highs in 2017.”
The report continues, stating that global venture-capitalist backed fintech startups raised roughly $4 billion between 278 deals, which is a six percent increase than the entire year of 2014. In the US, fintech startups raised $1.9 billion across 111 deals, putting the country on pace to surpass 2016’s year-end of $5.7 billion.
All told, the overall growth of the fintech market is promising as we head into 2018.
Making an investment in fintech
Finally, if you’re serious about making an investment in fintech, there are a number of ways to step into the sector
- PureFundsⓇ Solactive FinTech ETF (NASDAQ:FINQ) launched on the NASDAQ in August 2016 and includes 31 companies.
- Global X FinTech Thematic ETF (NASDAQ:FINX) launched in September 2016, but is primarily focused on US companies.
- Index: NYSE Fintech Index PR (INDEXNYSEGIS:NYOMFTX) arrived in April 2016, while the NASDAQ is aiming to set up the Nasdaq Ventures programme, mentioned above.
- Stocks: it seems as though fintech companies are popping up left, right and center, and it might be overwhelming for someWhy . Here’s a brief list for your consideration: BlackIce Enterprise Risk Management (CSE:BIS); GoldMoney (TSX:XAU); First Global Data (TSXV:FGD); Cortex Business Solutions (TSXV:CBX)–a fintech and cleantech company; and VersaPay (TSXV:VPY).
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This article was originally published on the Investing News Network in 2016.
Securities Disclosure: I, Jocelyn Aspa, hold no direct investment interest in any company mentioned in this article.