Investment in U.S. based fintech companies surged to $14.2 billion across 427 deals during the first half of 2018, as investors poured money into startups in fintech emerging segments such as regtech and blockchain, as well as late stage companies, according to the KPMG Pulse of Fintech report.
Fintech investment in the U.S. reached a new high of over $8 billion in the second quarter, following a strong first quarter. Total investment during the first half of 2018 increased from $12.2 billion across 371 deals during the second half of 2017, and included more than 10 $100 million-plus mega rounds, including insurtechs Oscar and Lemonade, and blockchain-based consortia company R3.
“Unlike the broader VC market, early-stage fintech companies have continued to attract a solid flow of capital in the U.S., with the several top deals in Q2 going to seed or early stage companies,” said Brian Hughes, U.S. National Co-Lead Partner, Venture Capital Practice, KPMG LLP. “At the same time, those able to attract later-stage funding likely reflects investor confidence in their ability to become market leaders, if they aren’t already.”
During the first half of 2018, VC investment in blockchain in the U.S. totaled $858 million, exceeding the 2017 total of $631 million.
“There’s more VC flow available than opportunities to invest – a sign of tremendous growth in the space,” said Safwan Zaheer, Financial Services Digital & U.S. Fintech lead for KPMG LLP. “Investments in blockchain related firms already doubled in the first half of 2018 compared to 2017. Blockchain has the potential to transform banking services. If banking systems were to be rewritten today they would be based on blockchain.”
Payments companies see strong exits
The payments and lending sectors continued to be one of the most mature of the fintech subsectors during the first half of 2018, with most investment activity centered on late-stage companies and those companies seeking to exit.
Traditional banks invest in digital banking offerings
During the first half of 2018, a number of traditional U.S. banks expanded their digital banking initiatives. JP Morgan announced the success of a digital bank pilot project and its intent to roll out the digital bank option nationally. Citibank also announced a digital-only bank, while Goldman Sachs announced the expansion of its Marcus initiative to the U.K.
Blank check companies on the rise in the U.S.
More than 20 new blank check companies (a development stage company that has no specific business plan or purpose or has indicated its business plan is to engage in a merger or acquisition with an unidentified company) were created during the first half of 2018, with more than 25 percent noting their intent to seek out fintech opportunities. The use of blank check companies suggests the increasing importance investors are placing on fintech opportunities and the desire to raise the funds necessary to make a purchase when the right opportunity arises.
Upcoming trends to watch
Blockchain, regtech and insurtech are all expected to gain momentum, even as artificial intelligence and robotic process automation continue to drive cross sector-opportunities. There will likely continue to be an emphasis on partnering with retailers and aggressive tech leaders globally.