May 4, 2016
From $1.8 billion in 2010 to $19 billion in 2015, the volume of FinTech investments proved that FinTech is a major force in the innovation of the financial services industry.
One of the regions that are on the rise is the Nordic region, where in the last 15 months, a total of 51 FinTech investments were made in startups from Sweden, Finland, Norway, Denmark and Iceland. Around $390 million were raised by FinTech companies from the region that gave birth to successful players like Klarna, iZettle, Seamless, BehavioSec, Coinify, Safello and others.
Israel’s FinTech is also among the most interesting ones. Overall, European and Israeli FinTech companies were reported to have raised $570 million across 95 deals in Q1 2016. Interestingly, almost the same amount of funding has been scattered across 32 deals in Q1 2015. It looks like investors are increasing the diversity of their portfolios and reducing the individual funding amounts.
The APAC region is also a hotspot for FinTech investments. Last year, total investments in the industry quadrupled, reaching $4.3 billion. China has attracted a significant part of the total investments – almost $2 billion. Around $1.65 billion went to India’s FinTech. In Q1 2016, FinTech investments in the APAC region have grown by more than 500% compared to the same period last year (from $445 million to $2.7 billion). China is reported to be almost solely responsible for the growth.
FinTech has been able to grow at such a rapid pace and attract significant funding due to a range of reasons. Legacy-free startups have the advantage of building their solutions from the ground up and take them straight to the customer with no middlemen. They were able to do it through mobile apps designed with customer convenience in mind. Growing smartphone penetration and usage rates came in handy and created a set of successful mobile-focused companies.
In fact, as professionals believe, freedom from legacy products is one of the advantages FinTech has over banks’ incumbents. Bank incumbents have to work with existing products and solutions and look for ways to improve them. Startups don’t have anything they have to maintain – they are free to create and break traditions.
There are certain segments within FinTech that have demonstrated a higher potential and hence, have attracted more funds. Lending and payments are of the top interest and some of the most saturated segments. P2P lending marketplaces are reported to be growing much faster than traditional lenders. Every month of Q1 2016 has demonstrated intensive financial interest towards payments & lending startups and growing competition. In fact, payments/loyalty/e-commerce companies have attracted almost half of the funds raised by FinTech companies in Q1 2016 – 46% (almost $4 billion). Banking/lending companies have raised 30% of the funds (close to $2.6 billion).
InsurTech is also among the segments attracting significant attention. Whether it is because of the consumer demand or other reasons, there is a tremendous support from some of the most notable investors internationally. There are around 700–800 InsurTech firms globally, which are addressing the requirements of the $4.5-trillion insurance industry. In the past two years, more than $3.3 billion have been scattered across 184 deals in the InsurTech segment. Average deal values in 2014 and 2015 were $9.9 million and $24.3 million respectively.
Although FinTech has been prosperous and gains traction and customer acceptance, some specialists believe FinTech is not a threat to the banking industry. Mr. Wallace of Silicon Valley Bank believes that the industry is large enough for everyone. There can be multiple winners, he said.