UK-based FinTech firms received 80% less VC funding than their German counterparts throughout Q2 2016.
According to CB Insights and KMPG’s The Pulse of FinTech Q2 2016 report, venture capital-backed FinTech firms in Germany saw more than an 80% increase in funding than those in the UK – with notable deals going to startups including N26 and Finanzcheck.
Given global market uncertainties associated with political events such as the UK’s Brexit vote and the upcoming US presidential election, the report notes that it was not surprising that venture capital investors refrained from making significant investments in the FinTech space.
Patrick Imbach, head of KPMG Tech Growth, KPMG in the UK, commented on the findings: “Without any doubt, there are uncertainties around Brexit, but with uncertainty comes opportunity. Free from EU rules, it is in the UK’s power to establish its own regulatory framework designed to support and encourage the growth of FinTech companies and further cement London’s role as a global FinTech hub.”
The UK at a glance
Although the report notes that total venture capital investment in the UK had decreased during Q2, it adds that FinTech investment was less affected.
The number of UK deals, it says, maintained a steady pace quarter-on-quarter while total deal value decreased slightly from $117m to $103m.
Regardless of Brexit, the report adds, the UK will not give up its role as a FinTech leader in Europe easily, demonstrated by the country’s regulatory sandbox and its announcement of a FinTech bridge with Singapore, which will seek to make it easier for UK-based FinTech firms to operate in that country and vice versa.
This, the report notes, highlights that the UK intends to continue to foster its strong FinTech ecosystem.
The overall picture
Despite the notable decline, the research shows that funding is currently on pace to surpass last year’s investment levels.
This ‘cooling-off’ period, the report adds, is expected to last throughout the rest of the year as investors continue to take a ‘wait and see’ approach in hope of seeing greater market stability in the next few months.
Although some VCs will remain cautious, the report highlights that many corporates are going ahead with FinTech-related activities.
“Banks, financial institutions and insurance companies seem to be continuing to shift their view of Fintech companies as disruptors and competitors to one where they are viewed as partners and enablers. Over the quarter, many traditional companies, globally, focused on creating opportunities to leverage FinTech, whether through direct investment, acquisition or the creation of innovation labs,” it says.
A regional outlook
According to the report, the US continued to dominate venture capital deals in the FinTech market; accounting for $1.3bn out of the total $2.5bn raised throughout the quarter.
Despite a slight drop in UK VC investment, European deals rose slightly from $300m in Q1 to $40om in Q2.
Although the number of deals dropped slightly, the report says, overall investment increased from $303m to $369m quarter-over-quarter.
The report also highlighted Germany’s role in Europe’s positive results, noting that investment had risen by 74% from $107m to $186m between Q1 and Q2’16 in the country.