Fintech investment in the U.S. hit a record $52.5 billion during 2018, driven by a strong M&A (mergers & acquisitions) market, and venture capital (VC) accounting for more than half of the 1061 fintech deals, according to KPMG’s 2018 Pulse of Fintech report.
M&A drove total fintech investment, highlighted by the year’s top M&A deal: a $17 billion investment in October by Blackstone Group into Refinitiv, the former financial and risk group of Thomson Reuters. That brought the total invested in Q4’ 2018 to $25.4 billion, up from $11.1 billion in Q3. M&A deals skewed toward smaller enterprises in 2018, while late-stage valuations nearly doubled.
A significant number of $100 million plus megadeals helping propel fintech-based VC investment to $11.4 billion, up from $7 billion in 2017. The number of fintech VC deals also reached a new high of 773 in 2018, up from 661 in 2017.
The report found that over the past year, there was a growing trend toward partnering between fintechs and big tech companies. While some of the large companies have introduced their own fintech offerings, others are considering partnering with fintechs in order to gain the collective benefits.
During 2018, mid-sized banks and financial institutions also got involved in fintech, as they focused on innovation to create sustainable growth.
“Banks of all sizes are increasing their investments across categories that make sense to them –insurance, payments, lending,” said Robert Ruark, Head of KPMG’s Fintech.
“They are seeking ways to accelerate their growth and we will continue to see this kind of activity in 2019 and beyond.”
Insurtech investment booming
Investment in insurtech grew substantially during 2018, in part due to the broad range of applications from automotive to home insurance. Healthcare related insurtech was strong, led by two financings by Oscar Health totaling $540 million, and a $300 million financing by Devoted Health.
Platform business leads fintech investment
Many of the largest deals in 2018 related to late-stage platform-based companies. These companies represent many fintech subsectors such as payments, health insurance, wealth management, digital currencies and business commerce.
Trends to watch in 2019
The report suggested there would likely be a significant amount of funding available to fintechs over the next few quarters, particularly in B2B, regtech and insurtech. Corporate investment will also remain strong but there could be an increased emphasis on partnership models over direct investments. Consolidation in the payments space could also take place as companies look to achieve the scale that is required to grow globally.
The full report can be found here.