News & Analysis

Pulse of Fintech report finds Q2 investment into VC-backed companies down but corporate ‘co-creation’ strong

- August 18, 2016 2 MIN READ

Global funding to venture capital-backed fintech companies dropped significantly in the second quarter of 2016, with the latest Pulse of Fintech report from KPMG finding that Asia saw the most dramatic decrease in funding, from US$2.6 billion in Q1 to just $800 million in Q2.

Rather than signifying a lack of interest in fintech across Asia, however, the decrease is due to the fact that there were no ‘mega-rounds’ within the quarter, with the overall number of deals across the region in fact on the rise at 46. The biggest deal of the quarter, US$4.5 billion for Ant Financial, came from private investors.

Internationally, KPMG reports that concerns around the UK’s Brexit vote earlier this year and the upcoming US Presidential election have had some impact on many a VC’s approach to the market, with expectations that this cooling off period may last until the end of the year as investors wait for market conditions to stabilise over the next few months.

China remains the biggest Asian market, of course, though KPMG notes that Australia, along with Singapore and Hong Kong, is setting itself apart as a fintech hub thanks to friendly regulatory measures, highlighting the establishment of a regulatory sandbox to allow fintechs to test their products as a key boost. Recent funding rounds for MoneyMe, PromisePay, and HashChing were also noted.

While VCs have been cautious, the report found that the growth of fintech in the region has been pushed by financial services providers and other corporates and their striving for ‘co-creation’; in Australia alone over the last few months we have seen the likes of CUA, Suncorp, and Westpac launch innovation challenges and fintech hackathons to come up with new concepts.

Westpac also recently doubled down on its support for its VC arm Reinventure, with the firm announcing the closing of its second $50 million fund.

“A lot of companies in Asia are trying to leverage fintech, not from a perspective of disrupting the market, but more from an efficiency and innovation perspective to improve the current processes and digital capabilities that they have,” said James McKeogh of KPMG Hong Kong.

Emerging niches globally over the last quarter included blockchain and ‘insurtech’, or insurance tech for the likes of healthcare and automotive insurance, as well as comparison websites and data management.

Though over 60 percent of VC-backed insurtech deals occurred in the US during this quarter, the report notes that Australia is seen as an attractive market to test customer-focused activities, with the launch of US startup Trov in the local market in partnership with Suncorp Group a key example.

The startup allows users to buy insurance for individual items of value, such as cameras, laptops, bikes, or instruments, turning it on or off as they please, creating what Trov calls ‘micro-duration’ policies. It chose to launch in Australia thanks to support from Suncorp, with which it first partnered in 2014, along with the friendly regulatory environment it enjoyed in Australia and the high level of smartphone penetration among consumers.

Martin Blake, a subject matter expert in insurtech at KPMG Australia, “Most insurers struggle to leverage existing data to deliver deeper insights. Fintech companies that have behavioral analytics and advanced data analytics capabilities can help these insurers gain a deeper understanding of behavioral trends and insights into individuals, allowing for the development and creation of much more customized solutions or fast-tracking customer service.”

Despite the global decrease in investment into VC-backed companies, the report concludes that fintech will continue to expand, with investment still on pace to exceed 2015 totals.

Image: Scott Walchek of Trov. Source: Supplied.