UK remains leader in fintech investment but loses global crown

Total investment activity in the UK in 2018 was almost four times higher than 2017 levels ($5.6bn) despite the total number of deals dropping. The levels reached in the UK accounted for the majority of activity in Europe – half of which came from the $12.8bn WorldPay acquisition in the first half of the year.

For the second half of 2018, UK investment activity dropped significantly to a total of $1bn compared to $2.8bn in the same period in 2017, a trend reflected widely across Europe.

Globally fintech investment activity rose to a record $111.8bn, more than double the $50.8bn in 2017, fueled by M&A and buyout deals.

Anton Ruddenklau, global co-lead, KPMG Fintech, said: “Despite activity tailing off in the second half of the year, the UK fintech sector reached record highs with an exceptionally strong 2018 – primarily driven by the acquisition of WorldPay by Vantiv at the start of the year.

“Fintech investment trends can be relatively agile but it remains to be seen if the drop in activity in H2 is due to Brexit uncertainties or the start of a wider trend, possibly the end of this fintech cycle as the next generation starts to emerge. We have seen a noticeable squeeze for early stage funding as investors focused on more secure bets. Overall we expect fintech levels to remain robust in 2019 in part due to further consolidation from companies looking to increase scale.”

Ian Pollari, global co-lead, KPMG Fintech, said: “The growing deal sizes, higher levels of M&A activity and the geographic spread of deals all highlight the increasing maturation of the fintech sector on a global scale.

“Fintech start-ups in markets as diverse as Germany and Brazil are attracting larger and later stage rounds, while the more established fintech leaders in the US, UK, and Asia are making their own investments and acquisitions in order to expand their product and geographic reach.”

2018 Key Highlights

• Mega deals drove a record $111.8B global fintech investment activity in 2018, led by three $10bn+ deals, as well as an additional 14 $1bn+ M&A deals. All told, 2018 was a year of multiple record highs across fintech investment, including VC, corporate VC, M&A and PE.
• Fintech investment in the Americas rose from $29bn in 2017 to $54.5bn in 2018. Deals volume also increased from 1,039 deals to 1,245. The US accounted for the bulk of this funding - $52.5bn across 1,061 deals.
• European fintech investment activity for 2018 increased sharply to $34.2bn from $12.2bn in 2017, thanks to massive M&A and buyout deals, including WorldPay ($12.8bn), Nets ($5.5bn), iZettle ($2.2bn), Fidessa Group ($2.1bn), and IRIS Software Group ($1.75bn).
• The total Asia Pacific fintech investment activity for 2018 of $22.7bn, up from $12.5bn in 2017, was dominated by Ant Financial’s record-setting $14bn deal in Q2’18, as fintech investment in the region slowed significantly in the second half of the year.
• Cross-border M&A rose significantly in 2018, with approximately $53.5bn invested across borders in 155 deals, up from $18.9bn in 153 cross-border deals in 2017. The US drew $28bn in cross-border M&A, while Europe attracted $21.6bn.
• Investment flowed at a significant pace into key subsectors and technologies – regtech investment surged to $3.7bn in 2018 from $1.2bn in 2017, while investment in blockchain remained strong at $4.5bn in 2018, just off the $4.8bn in 2017.

“Beyond new fintech-fueled business models, the increasing regulatory and legal obligations emanating from PSD2, GDPR and other regulations are impacting both established players and emerging fintechs,” said Anton Ruddenklau, Global Co-Lead, KPMG Fintech. “As a result, there is increasing interest in technologies – like AI and machine learning – that can be used to help manage compliance requirements more effectively. There’s little doubt that technology investment is going to go up, up, up.”