KPMG Report Reveals Continued FinTech Investment, Interest in AI

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A recent report by KPMG reviewed the global trends and investment in FinTech for the first quarter of 2017. In this, KPMG revealed that fintech investment worldwide held remained steady, with a fintech deal value in Q1 of 2017 reaching $3.2 billion, of which VC investment contributed $2.3 billion. Payments and lending remained the largest area of investment for the most part, but AI, IoT, big data, RegTech and InsurTech were reported as experience rapid growth.

In Europe, FinTech investment grew in Q1’17, with $880 million invested across 89 deals - $610 million across 67 deals from VC investment. The impact predicted from Brexit seems not to have materialised, with the UK accounting for half of the top ten European investments. The UK was also reported to have continued global VC investment, with an example cited of London-based cross-border payments company CurrencyCloud raising $25 million from Google Ventures.

Additionally, companies such as banks, insurance providers and other financial institutions have continued to invest in FinTech, demonstrating a ongoing commitment to further innovation through developing new technologies. The report noted that companies had a focus on possible partnerships with fintech companies in order to gain access to  new customers or greater levels of customer data. This would also provide the businesses with access to technologies and tools to help provide more attractive and cost effective solutions for customers.

Investment in Europe was found to be at its highest level in recent years. The US also had strong levels of investment; whereas Asia saw a decline which was attributed partially to the introduction of new fintech regulations in China - although this dip is expected to be temporary.  The top ten global deals were found to be from the UK, US, Canada, India, China and Sweden.

Despite a reduction in blockchain investment, interest was reported as remaining high, with consortia growing for InsurTech blockchain applications. KPMG is of the opinion that Q2 will see more of a focus on developing robust business cases for blockchain solutions, alongside the expansion of blockchain investment further into insurance as companies are pressured to embrace InsurTech innovation, or into asset management sectors. It may be that the reduction in FinTech blockchain investment represents the maturing of established use cases to a point where they require less investment and the investment will move onto upcoming blockchain start-ups which are focussed in other sectors, such as the noted insurance and asset management, or possibly developments in the gambling sector.

Eamonn Maguire, Global Head of Digital Ledger Services of KPMG International and Managing Director of KPMG in the US, commented: “There has been a lot of experimentation and prototypes in blockchain, but the moment has arrived where movement to production and transformation requires critical analysis on a solid fact base that generates business confidence in the validity of production systems development, transformation and its commercial benefits. With this confidence, blockchain proponents will have the necessary business sponsorship to unlock the promise of blockchain.”

In newer areas investment is likely to go towards solution testing and piloting being carried out on a variety of solutions, ranging from enabling peer-to-peer or community-based options, to employee benefits, software as a service models and comparison sites. Investments in enabler technologies like artificial intelligence and IoT are also expected to grow, with AI being called out specifically as a key area of focus for many investors.

The potential of new technology to reducing compliance costs through automation was attributed to a drive in RegTech investment – particularly in the US and UK. The report also highlighted trends to monitor in the coming year of further FinTech investment and the expansion of FinTech companies. Of particular note may be the suggestion that some FinTech companies may try to gain banking licenses – disrupting the sector further and causing concern to established businesses. It may be that the start-ups eventually overtake and replace incumbents in the financial and other sectors.