July 2018 saw the publication of the 2018 edition of KPMG’s biannual report on ‘The Pulse of Fintech’. This market encompasses technology that is applied in financial services or used to help companies manage the financial aspects of their business, including new software and applications, processes and business models.
Perhaps it’s not surprising then, that the report paints a positive picture of a strong global fintech investment market, where fintech is becoming increasingly embedded in the operations of firms from SMEs to unicorns.
The report notes that fintech is something that the UK excels in, leading the UK government to, “take decisive action to support the continued strength of the UK fintech market. In March, it released its first Fintech Sector Strategy which is expected to help the UK retain its leadership in the fintech space in Europe.”
This goes some way to explaining why Venture Capital (VC) investors remained bullish regarding fintech opportunities in Europe in Q1 and Q2 of 2018, despite concerns about a potential hard Brexit in 2019. But, beyond geopolitical circumstances, this is clearly an area of massive potential.
As some of the sectors of the market become more mature, some of that potential is already being realised; this year, one of the biggest European fintech deals involved $250M for Revolut, a London, Payments/transactions company founded just three years ago. In fact, global funding of fintech deals to date has already exceeded the total amount of fintech funding seen in 2017 and is well on pace to exceed 2015’s peak.
Not only are maturing areas of fintech seeing bigger deals, but, during the first half of 2018, investors focused on a broader range of innovative technologies than ever before. At a technology level, interest in AI and robotic process automation (RPA) continued to gain attention while interest in insurtech and regtech also grew significantly.
These are all areas in which Oxford Capital takes a keen interest, having recently invested in Wrisk (app-based insurance for cars, gadgets, house contents…), Xihelm (robotic fruit and vegetable harvesting) and Latent Logic (machine learning technology for autonomous vehicles and traffic simulations).
One of the drivers for the growth of this market has been changes to the financial services landscape, with UK legislation in particular designed to open up banking to facilitate more healthy competition and financial marketplaces. KPMG expects to see traditional institutions increasingly looking to partner with fintech innovators that can process and leverage their data and use open banking to extend their value propositions.
At a time of increasing digital engagement, the interest is also set to draw in non-financial services companies, such as communications companies, energy providers and retailers interested in leveraging open banking as a means to extend their reach into financial services.
These factors have led to an increase in the diversity of investors, including more active participation by corporates outside of the big banks and largest insurance companies. This strong demand is an indicator of attractive exit routes for earlier investors.
KPMG certainly appreciates why Venture Capitalists such as Oxford Capital’s Ventures team sees fintech as a sector not to be ignored: “Fintech’s popularity among VCs at all stages speaks to its core attributes: well-defined market opportunities in its major segments, long-developing innovation cycles and significant growth opportunities amid the best-developed segments.”
For more information about Oxford Capital’s ventures investments in all areas of technology, click here.