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U.S. Leads Fintech Investment in Q1, But Europe Gains Ground

A new report on fintech deals in the first quarter shows that investment in these companies climbed in the U.S. and Europe but fell in Asia.

  • Sheila Dang

Investment in financial technology companies rose in the U.S. and Europe during the first quarter of this year, while such deals declined in Asia, according to a new report.

Total fintech investment in the first quarter clocked in at $3.2 billion invested across 260 deals, down from $4.15 billion in the fourth quarter of 2016 and a comparatively modest total compared with 2015 and early 2016 levels, KPMG said in a new report, titled “The Pulse of Fintech.”

The U.S. led fintech investment in the first quarter, with $1.5 billion, “with investors focusing on late-stage, clear front-runner fintech companies,” said Anthony Rjeily, KPMG’s U.S. financial services fintech practice co-leader, in a statement accompanying the report. But investors increasingly turned their eye to Europe despite uncertainties related to Brexit, marking new turning points in the region. In Europe, investors pumped some $880 million into 89 deals during the quarter, of which venture capital accounted for $610 million, the strongest-ever quarter for European VC fintech deals, KPMG said.

The three largest European deals in the first quarter match the worldwide trend, as “payments and lending continue to attract the most funding globally,” said Brian Hughes, national co-lead partner of KPMG’s venture capital practice, in the U.S, in the statement. iZettle, a Swedish mobile payments processor, claimed the largest deal of $175.2 million in Series D funding, while Atom Bank, the first bank built for mobile-only in the U.K., landed $103.6 million during the quarter. Funding Circle had the third largest deal at $101.1 million for its peer-to-peer lending marketplace.

The median fintech deal size increased in Europe during the period, to $3.17 million. This may demonstrate a preference among investors for mature fintech companies that are safer during uncertain times such as Brexit, KPMG noted.

Payments and lending also accounted for the largest deals in Asia, such as $200 million in funding for Mumbai-based Paytm E-Commerce from investors including Alibaba, as reported by Reuters last month . Another was Chinese startup Yongqianbao, a provider of small loans, which received $68 million in Series C funding.

Yet total fintech investment in Asia was just $492 million across 33 deals during the quarter, a significant decline, KPMG said, partly due to the lack of mega-deals that dominated past quarters. One reason for the drop in Chinese investments specifically may be due to new government regulations for internet financing, KPMG noted. Still, investment is increasing in countries outside China. Interest in South Korea is growing, with one notable announcement being China’s Ant Financial investing $200 million into Kakao Pay, part of Korea’s leading messaging app.

In the U.S., investors may be waiting to see changes from the new administration on trade and tax policies before making more deals, KPMG says. The largest fintech deal worldwide during the quarter was San Francisco-based SoFi, which offers student loan refinancing, mortgages, and personal loans. In February, it secured $500 million in funding led by Silver Lake, a technology investor, according to a SoFi press release .