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Our prediction from Q3 of last year, that global VC-backed fintech funding volumes in 2016 would not exceed those achieved in 2015, has been proved accurate by data from CB Insights.
Global VC-backed fintech funding reached $12.7 billion in 2016, down 13% year-over-year (YoY) from $14.6 billion in 2015. However, deal numbers held firm at 836, down just 1% YoY from 848 in 2015. That suggests the decline in funding was the result of smaller deal sizes, and that’s backed up by a couple of other key pieces of data.
Here are the factors that indicate funding rounds for fintechs are getting smaller:
Fewer mega-rounds. There were 38 mega-rounds ($50 million+) in 2016, down from 63 in 2015. North America continued to lead when it came to these large deals, with 24 fintechs in the region completing rounds of $50 million or higher, compared with 14 in Asia and none in Europe.
Two deals in China accounted for $2.2 billion. Lending platform LU.com raised $1.2 billion, while JD Finance, a subsidiary of e-commerce giant JD.com, raised $1.0 billion. Without these two deals, global fintech funding would have suffered a much steeper YoY decline of 28%, and deal numbers would have remained flat.
Smaller deal sizes suggest increased investor caution in 2016. That was likely driven by a number of factors, including increased global and political instability in comparison to 2015, particularly in Europe and North America. Investors were also probably spooked by the problems suffered by fintech giant Lending Club, and a number of other big players’ continued failure to attain profitability. None of these issues seems likely to be resolved in the short run.
In turn, this indicates fintechs would do well to adjust their expectations. A large amount of money poured into fintechs from VCs in 2015, likely leading many startups to believe they could rely on VC investment in lieu of profitability as they achieved scale. However, given there was less funding available in 2016, and that trend seems likely to continue into 2017, fintech startups should evaluate their business models and ambitions, and ensure they are realistic and in line with the changed funding environment.
We’ve entered the most profound era of change for financial services companies since the 1970s brought us index mutual funds, discount brokers and ATMs.
No firm is immune from the coming disruption and every company must have a strategy to harness the powerful advantages of the new fintech revolution.
The battle already underway will create surprising winners and stunned losers among some of the most powerful names in the financial world: The most contentious conflicts (and partnerships) will be between startups that are completely reengineering decades-old practices, traditional power players who are furiously trying to adapt with their own innovations, and total disruption of established technology & processes:
Traditional Retail Banks vs. Online-Only Banks: Traditional retail banks provide a valuable service, but online-only banks can offer many of the same services with higher rates and lower fees
Traditional Lenders vs. Peer-to-Peer Marketplaces: P2P lending marketplaces are growing much faster than traditional lenders—only time will tell if the banks strategy of creating their own small loan networks will be successful
Traditional Asset Managers vs. Robo Advisors: Robo advisors like Betterment offer lower fees, lower minimums and solid returns to investors, but the much larger traditional asset managers are creating their own robo-products while providing the kind of handholding that high net worth clients are willing to pay handsomely for.
As you can see, this very fluid environment is creating winners and losers before your eyes…and it’s also creating the potential for new cost savings or growth opportunities for both you and your company.
After months of researching and reporting this important trend, Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider's premium research service, has put together an essential report on the fintech ecosystem that explains the new landscape, identifies the ripest areas for disruption, and highlights the some of the most exciting new companies. These new players have the potential to become the next Visa, Paypal or Charles Schwab because they have the potential to transform important areas of the financial services industry like:
Retail banking
Lending and Financing
Payments and Transfers
Wealth and Asset Management
Markets and Exchanges
Insurance
Blockchain Transactions
If you work in any of these sectors, it’s important for you to understand how the fintech revolution will change your business and possibly even your career. And if you’re employed in any part of the digital economy, you’ll want to know how you can exploit these new technologies to make your employer more efficient, flexible and profitable.
Among the big picture insights you'll get from The Fintech Ecosystem Report: Measuring the effects of technology on the entire financial services industry:
Fintech investment continues to grow. After landing at $19 billion in total in 2015, global fintech funding had already reached $15 billion by mid-August 2016.
The areas of fintech attracting media and investor attention are changing. Insurtech, robo advisors, and digital-only banks are only a few of the segments making waves. B2B fintechs are also playing an increasingly prominent role in the ecosystem.
It's not all good news for fintechs. Major hurdles, including customer acquisition and profitability, remain. As a result, many are becoming more willing to enter partnerships and adjust their business models.
Incumbents are enacting strategies to ensure they remain relevant. Many financial firms have woken up to the threat posed by fintechs and are implementing innovation strategies to stave off disruption. The majority of these strategies involve some interaction with fintech firms.
The relationship between incumbents and fintechs continues to evolve. Fintechs are no longer viewed exclusively as a threat, nor can they be ignored. They are increasingly viewed as partners, but that narrative alone is too simple — in reality, a more nuanced connection is taking hold.
This exclusive report also:
Assesses the state of the fintech industry.
Gives details on the drivers of its growth.
Explains which areas of fintech are gaining traction.
Outlines the range of current and potential models for fintech and incumbent interaction.
The Fintech Ecosystem Report: Measuring the effects of technology on the entire financial services industry is how you get the full story on the fintech revolution.
To get your copy of this invaluable guide to the fintech revolution, choose one of these options:
Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIP
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The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of the fast-moving world of financial technology.
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