Top5 observations of the global FinTech market in 2016
1. This time has come: VC investments into FinTech industry have not grown globally and the market has almost reached its saturation point in 2016.
The amount of VC investment in 2016 was $23.6B USD which is 16% higher than in 2015, however excluding Ant Financial investment deal of $4.5B (which is abnormal for the whole tech industry, not even fintech), the fintech market decreased by 6% in 2016.
From my point of view, there are few reasons for this:
· In 2014 and especially in 2015, level of investment noise in fintech reached its maximum, which caused massive inflow of “unprofessional” money from different investors, who just followed the hype, without deep investment analysis and understanding of the industry. Invested capital didn’t reflect the real operational and financial achievements of newly funded startups.
· Business metrics (customer base, transactional volume, revenue and income) of many notable Fintechs in 2016 were not impressive at all (actually most of them are still unprofitable and growing not as fast as expected) that is why many investors finally cooled down. As an example, you can take a look at public fintech companies: still they are still unprofitable or just reached breakeven (Square, Lending Club, Ondeck)
At the end, I have to mention that FinTech undoubtedly remains #1 industry in the VC space by investment volume and it’s even increased its share to 19% of the whole VC market in 2016, while overall VC industry slightly decreased in 2016 (by 9%).
2. Asia became #1 Fintech market in the world with almost 50% share of global VC volume
Asia’s share of global Fintech investment is 47% in 2016! Sounds impressive? What is even more impressive is that more than 80% of invested capital went towards firms in China, meaning that China has finally become the dominant power on the global fintech landscape, surpassing US and all others, which was never the case before 2016.
Another interesting observation is that we see a lot of megadeals from China, while those fintech startups are quite young (2–4 years old), meaning that large investors understand the huge potential of the fintech industry, and invest not into companies, but into the market, in other words, rely not on company performance, but on its future potential (is it the right way or not — you decide, time will tell)
3. Lack of significant exits (M&As and IPOs) in the Fintech industry, however assuming them to happen in 2017
Unfortunately 2016 was quite poor for notable exits in the fintech space. While quite descent amount of M&As happened, only few of them can be considered as successful for founders and investors. Most of fintech startups were acquired to get an access to their technology, not because of their business successes, meaning that multiples were quite low (similar to traditional software companies and much lower than in tech VC). IPO exits looked even worse — only few traditional payment and financial services companies went public, no any bright startups.
However it worth noticing that few awaited IPOs were postponed in 2016 and we expect to see them in 2017. Below is our TOP10 of potential IPOs:
4. Payment and Lending verticals still dominate the Fintech market, blockchain doesn’t justify high expectations (yet)
Lending and Payments startups still dominate on the FinTech market, accounts for more than 50% of the industry both in number of investment deals and M&A deals. The fastest growing segment is Insurtech, which doubled its share in 2016. Blockchain still remains a relatively small vertical: it accounts to less than 2.5% of the whole industry, despite a lot of noise and PR around it.
In my top of fintech investment deals in 2016 there are companies from different verticals: 1 payment, 1 lending, 1 insurtech and 1 digital bank (interesting that it’s from Brasil, not UK)
5. King’s change in the unicorn battle: Chinese fintech behemoths surpassed US peers
Even without considering Ant Financial ($60B+ valuation), Chinese fintech giants occupy the Fintech Hill: Lufax, ZhongAn and JD. And these companies are notable not only due to their huge customer bases, operational records and funding attracted. They create a unique customer journey by expanding their product line and significantly increasing value proposition for the end-users. As an example, Lufax, started as a p2p-lender, successfully jumped into wealth management business providing opportunity for Chinese customers to invest into foreign stock.
Who will be able to compete with these monsters from China in the next few years for the global leadership? I bet on Stripe, TransferWise and SoFi who seem to be the most sustainable or/and scalable businesses in the fintech world. While Chinese players are fighting for local leadership, some of the US/EU players has successfully started global expansion and conquer emerging countries in Africa, LatAm and Asia.
Exciting time for Fintech!
Read also:
“FinTech Results 2016: Banks and Regulators”
“FinTech Results 2016 in Asia: China became the new Leader in the FinTech worldwide”
Fintech Results 2016: Blockchain and InsurTech
P.s. If you are interested in FinTech/BlockChain/InsurTech, please take a look at our semi-annual research “Money of the Future” (download at http://fintech-research.com/) and feel free to contact us directly.
Partner and Investment Director at Life.SREDA
