How high can fintech funding climb?
February 27, 2018 3:46 PM
Funding for independent robo advisors is likely to accelerate and branch into new areas, like artificial intelligence and blockchain, according to a new study on fintech M&As by the accounting firm KPMG.
The largest independent digital advice platforms have profited sizably from a strong M&A market — includingWealthfront that secured $75 million in January and Betterment that attracted $70 million last July.
Firms likePersonal Capital that secured $40 million in August have even reinvested in their advisor base, hiring in multiple cities across the U.S.
In fact, M&A activity for all fintech sectors totaled $8.7 billion over 154 deals in 2017, according to KPMG’sPulse of Fintech study. Backed by a strong economy and substantial increases in private equity, U.S. investments accounted for almost half of all global funding at $15.2 billion for the year, according to the study. Investments topped $5.8 billion in the fourth quarter alone.
“We are seeing the more mature fintechs, the ones that have achieved a certain scale, now looking to branch out into new service areas and to complement their core offerings through inorganic growth,” says Anthony Rjeily, digital and fintech practice leader for KPMG. “They are starting to invest in and acquire small fintechs themselves. This is a new dynamic in the fintech funding space, but one we will continue to see moving forward.”
The new investments were bolstered by influxes of private equity in the U.S. that skyrocketed in the fourth quarter with $3.4 billion in deal activity — the second highest quarter of PE investment in fintech on record, according to the study.
“Both traditional corporates and some of the more well-developed fintech companies in the U.S. see strategic acquisitions as a ready means to make leaps in innovation, bridge operational or service gaps, or expand,” says Brian Hughes, national co-lead partner at KPMG. “For traditional financial institutions, a buy approach also ensures they have feet on the ground with respect to innovation and better access to knowledge as to how the fintech ecosystem will continue to evolve.”
As the independent robo advisor space matures, digital platforms are likely to continue to attract funding, the study suggests. Click through our slideshow to learn more.
The largest independent digital advice platforms have profited sizably from a strong M&A market — including
Firms like
In fact, M&A activity for all fintech sectors totaled $8.7 billion over 154 deals in 2017, according to KPMG’s
“We are seeing the more mature fintechs, the ones that have achieved a certain scale, now looking to branch out into new service areas and to complement their core offerings through inorganic growth,” says Anthony Rjeily, digital and fintech practice leader for KPMG. “They are starting to invest in and acquire small fintechs themselves. This is a new dynamic in the fintech funding space, but one we will continue to see moving forward.”
The new investments were bolstered by influxes of private equity in the U.S. that skyrocketed in the fourth quarter with $3.4 billion in deal activity — the second highest quarter of PE investment in fintech on record, according to the study.
“Both traditional corporates and some of the more well-developed fintech companies in the U.S. see strategic acquisitions as a ready means to make leaps in innovation, bridge operational or service gaps, or expand,” says Brian Hughes, national co-lead partner at KPMG. “For traditional financial institutions, a buy approach also ensures they have feet on the ground with respect to innovation and better access to knowledge as to how the fintech ecosystem will continue to evolve.”
As the independent robo advisor space matures, digital platforms are likely to continue to attract funding, the study suggests. Click through our slideshow to learn more.
AI on the rise
The number of investment deals continued to climb in the fourth quarter of 2017, according to the study. M&A activity for all fintech sectors totaled $8.7 billion over 154 deals in 2017, likely due to the increased effectiveness of new artificial intelligence technologies, says Safwan Zaheer, director of digital financial services at KPMG.
“Regulatory reporting and compliance is likely to be the next major target for AI-driven innovation given how manual and friction-full those processes are for many financial institutions,” says Safwan Zaheer, director of digital financial services at KPMG.
“Regulatory reporting and compliance is likely to be the next major target for AI-driven innovation given how manual and friction-full those processes are for many financial institutions,” says Safwan Zaheer, director of digital financial services at KPMG.
Hybrids pick up steam
Independent platforms and traditional institutions are increasingly turning toward hybrid advising models that rely at least in part on human advisors.
“We’re seeing approaches that adopt a combination of automation plus the human touch to manage HNW clients,” Zaheer says. “The robo advisory space started off being very automated and digital-centric, but as the products matured there was a need to maintain a fine balance between the human touch and the automation that’s needed for managing some of the very HNW clients.”
Market leaders such as Betterment — once just a pure play robo-advisor — have jumped toward the hybrid model in order to compete, according to the study.
Hoping to sway the children of their high-net-worth investors, Morgan Stanley launched its Morgan Stanley Access Investing platform designed to help investors with less complex needs, according to the study.
“We’re seeing approaches that adopt a combination of automation plus the human touch to manage HNW clients,” Zaheer says. “The robo advisory space started off being very automated and digital-centric, but as the products matured there was a need to maintain a fine balance between the human touch and the automation that’s needed for managing some of the very HNW clients.”
Market leaders such as Betterment — once just a pure play robo-advisor — have jumped toward the hybrid model in order to compete, according to the study.
Hoping to sway the children of their high-net-worth investors, Morgan Stanley launched its Morgan Stanley Access Investing platform designed to help investors with less complex needs, according to the study.
First-time financing
While the number of fintech deals in the U.S. ticked down from 126 last year, the value of those deals accelerated significantly. Total capital invested rose from $328 million in 2016 to $478 million last year.
Machine learning and artificial intelligence may have played a role in the increases, the study suggests. As more “concrete application” for the technology arises, investors are willing to pour plenty of dollars at fledgling startups.
“AI continues to be a hot area for fintechs investment, in part because of its widespread applicability,” says Safwan Zaheer.
Machine learning and artificial intelligence may have played a role in the increases, the study suggests. As more “concrete application” for the technology arises, investors are willing to pour plenty of dollars at fledgling startups.
“AI continues to be a hot area for fintechs investment, in part because of its widespread applicability,” says Safwan Zaheer.
Photographer: Alexey Stiop/Alexey Stiop - stock.adobe.com
Blank checks
Blank check companies are becoming more prevalent in the digital advisory space, according to the study.
In the fourth quarter, the blank check company FinTech Acquisition raised $153 million to make a grab for a fintech company; while another blank check company Crescent Funding plans to make a $250 million IPO in early 2018 to further acquisitions, according to the study.
In the fourth quarter, the blank check company FinTech Acquisition raised $153 million to make a grab for a fintech company; while another blank check company Crescent Funding plans to make a $250 million IPO in early 2018 to further acquisitions, according to the study.
Follow the money
Investment activity is slowly shifting back towards the West Coast.
The region witnessed a 2.5% increase in the number of deals closed in 2017 compared with the prior-year period, according to the study.
The region witnessed a 2.5% increase in the number of deals closed in 2017 compared with the prior-year period, according to the study.
Tracking the investments
The West Coast also dominated the value of investments with 42.6% of all activity taking place in the region.
The Mid-Atlantic (26.6%) was the second busiest region although activity slowed from the prior-year period. The Midwest (8.4%) saw the largest increase in value ticking up 2.8% in 2016.
The Mid-Atlantic (26.6%) was the second busiest region although activity slowed from the prior-year period. The Midwest (8.4%) saw the largest increase in value ticking up 2.8% in 2016.
