Global investment in disruptive financial technology firms by venture capital funds rose by 10.9 per cent in 2016 compared to 2015, according to data from Innovate Finance, which also showed UK fintech investment was down 33.7 per cent owing in part to the ‘Brexit effect’.
Founded in 2014, Innovate Finance is an independent membership association representing the UK's fintech community. Their latest research clocked up 1,436 fintech deals globally, attracting $17.4bn in investment – a 10.9 per cent increase from 2015.
While the numbers show growth overall, the UK VC investment for fintech firms was down 33.7 per cent at $783m and is less than two thirds of 2015 investment of $1.2bn. Nine of the top 20 UK deals closed post Brexit, with total investment after the referendum results of $368m, showing the market is returning to growth.
China’s $7.7bn of investment was the highest, outpacing the US at $6.2bn for the first time, with 3 “mega-rounds” each over $1bn. Alipay’s $4.5bn round was the largest Fintech VC round in history.
Lawrence Wintermeyer, CEO of Innovate Finance, says while UK fintech investment was down in 2016 this is largely attributable to the uncertainty of Brexit and geopolitical and macroeconomic factors, with Q3 funding rebounding and 9 of the top 20 deals completed in the 6 months following the referendum, with the UK retaining its global ranking of third place.
“China and the US dominate fintech investment with a combined $13.9 bn of the total $17.4bn, 80 per cent of the global venture capital raised in 2016, and the top two ranked future foreign investment sources for UK fintech. The top three UK deals were Starling Bank ( a challenger bank) at $101m, iwoca (alternative finance) at $57m and Nutmeg (robo advice) at $52.2m,” he said.
“The loss of passporting rights will hit fintech payments firms if special provisions to the single market are not negotiated upon leaving the union. However, maintaining and further improving access to global fintech talent has superseded passporting across the Fintech community’s post-Brexit priorities. Over 30 per cent of Innovate Finance fintech founders and CxOs are non-British with many employing European staff. Attracting further investment to UK fintech remains the number one priority," he added.
The sector stayed away from the public markets, however, with no notable fintech IPOs globally in 2016, with exits being realised through M&A activity.
UK firm Markit led the global M&A charge with its $5.5bn merger with US-based HIS. UK remains third in total investment at $783m behind the US and China and attracted the highest volume of deals outside the US at 173.
Nine of the top 20 UK deals closed post Brexit, with total post Brexit investment of $368m. 29 per cent of UK investment in 2016 was into alternative lending/financing, followed by challenger banks (20 per cent), wealth management (10 per cent) and money transfer and FX (10 per cent).
Starling Bank, which raised $101m, was the only UK investment in the global top 20 deals. Nine out of the top 20 Fintech investment deals in the UK were Innovate Finance members: iwoca ($57m), Nutmeg ($52.2m), Transferwise ($26.0m), LendInvest ($25m), Property Partner ($22.6m), Digital Shadows ($14m) Azimo ($13.4m), GoCardless ($13.0m) and Crowdcube ($10.5m)