FinTech bubble bursts as investment hits $13.8 billion

FinTech investment around the world smashed 106% last year to $13.8 billion (£9.7 billion), according to a new report from KPMG and CB Insights.

The Pulse of FinTech report, published by KPMG and venture capital information provider CB Insights, shows a huge surge of investment, topping multi-year highs.

The report says 2015 was a year of “mega rounds”, with over 60 rounds of $50 million (£35.2 million) or more invested last year alone, compared to just 15 between 2011 and 2013.

KPMG and CB Insights say 2015 was “the year that FinTech entered the mainstream,” saying: “Almost every major process within banking and insurance is being targeted by FinTech companies globally, either to disrupt the incumbents or, increasingly, to enable them to serve their customers better or reduce costs.”

However, drilling into the data, it looks like we may have passed a peak for investment in the sector, rather than seeing it continue to spike in 2016.

Deal activity fell in the final two quarters of the year, with a particularly steep drop-off in the final quarter of the year.

“As investors grew more cautious toward the end of 2015, total global VC investment dropped significantly – from $38.7 billion to $27.2 billion between Q3 and Q4. Fintech also experienced a similar decrease – from $4.7 billion to $1.7 billion over the same period. This drop was likely a reflection of growing caution across all areas of VC investment, rather than a concern with FinTech in particular,” notes the report.

This matches up with what we’ve been hearing from a lot of investors, with some starting to worry about froth in the market and Alex McCracken, managing director of venture services at Silicon Valley Bank, saying we’ve reached the point in the market where it’s about backing the clear winners — hence the mega-rounds — rather than placing lots of little bets.

“While caution is expected to continue to be a trend over the next few quarters, FinTech interest is not likely to be held back for long. For the short-term, corporate investment in FinTech will likely take center stage as corporates pursue longer term objectives associated with the perceived value that FinTech can provide to their own organizations,” the report concludes.

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