2016 Update: FinTech Investment Exceeds Predictions

Halfway through 2016, analysts in the industry are evaluating whether last year’s prognostications about this year’s investments in Fintech are coming true. Below is a summary:

  • In keeping with prognostications of more financing growth in FinTech this year, the first quarter of 2016 showed growth of 96 percent for venture capital-backed firms compared to Q1 of 2015. Funding to VC-backed firms reached $4.9 billion over the quarter, while private FinTech firms received $5.7 billion. Last year was a record year for VC-backed FinTech startups, which saw a 106 percent jump over 2014 by garnering $13.8 billion in financing. The overall FinTech market saw $19.1 billion in financing in 2015.
  • In comparison, Gartner reports worldwide spending on IT is slated to remain flat in 2016, totaling $3.41 trillion. The exception is expected to be software, growing nearly 6 percent, and IT services including consulting, increasing nearly 4 percent. “Global VC investment into the technology sector may be experiencing a bit of a pause, however FinTech, propelled by some very large mega-rounds, has proven to be an exception to the rule,” comments Warren Mead on redherring.com.
  • In evaluating the outlooks of some FinTech sub-sectors, it’s been found that:
    • P2P lending sites still have room to grow as consumers and businesses seek faster loans, reports Sonny Singh on Financemagnates.com. “The incumbent banks can’t move as fast as these upstart lending sites, and they will eventually look to acquire these sites,” he reports. “A couple of players from this space will go public this year and Lending Club’s stock price will slowly increase. The rise in interest rates will not cause a dramatic increase in defaults … yet.”
    • Some analysts predict less financing in the payments space. “With companies such as Square and Stripe dominating the North America market, early-stage investors are showing less and less interest,” reads a recent report by KPMG and CB Insights.
    • Interest in helping fund lending platforms continues in 2016. “Hedge funds and family offices (are) looking to expand their portfolio by investing in FinTech companies, especially in lending platforms,” reads the KPMG report. “Whether it is sustainable is another question. There has been some press around dips in performance from some lending platforms.”
  • Mergers and acquisitions in the FinTech sector have been fairly brisk so far this year, reports Jon Marino on cnbc.com. Some examples he noted include:
    • Ally Financial bought online brokerage TradeKing Group for $275 million.
    • BlackRock acquired online investment firm FutureAdvisor for $150 million.
    • Goldman Sachs bought Texas-based online retirement-planning service Honest Dollar for an undisclosed amount.
    • Spanish bank BBVA bought out Finnish banking startup Holvi for an undisclosed amount.
    • BNP Paribas announced a partnership with SmartAngels, a direct investing platform for crowdfunding deals.
    • JPMorgan Chase & Co. partnered with online lender On Deck Capital to help generate loans to the bank’s customer base.
  • Representatives from Business Insider’s research service made the following further predictions that could affect financing in FinTech this year:
    • Blockchain technology will become “more than a fad” as global banks seek a related solution for inter-bank transactions.
    • Big players Apple, Google and Samsung will build out commerce experiences around their payments products.
    • Business management apps will become prevalent on mobile point-of-sale devices.
    • Mobile ordering apps will become widely used for quick-service restaurants.
    • Traditional financial institutions will continue to respond to the threat of FinTech startups by partnering with them.

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