Canada was a hotspot for fintech investment in the second quarter (Q2) thanks to one large deal, according to a new report from KPMG.
The firm reports that global fintech investment more than doubled in Q2 to $8.4 billion from $3.6 billion in the first quarter (Q1; all figures are in U.S dollars).
A large portion of the increase was due to a single big deal — the $3.6-billion buyout of Toronto-based payments firm, DH Corp., by San Francisco-based Vista Equity Partners, which boosted fintech investment totals for Canada, specifically, and the world, overall.
Investor interest in the fintech sector remains quite high in Canada, particularly among pension funds, the KPMG report finds. Furthermore, it says that the Big Five banks also continue to place a strong emphasis on fintech innovation, with the banks increasingly seeking to partner with innovative firms.
Globally, mergers and acquisitions boosted fintech investment in Q2, generating $5.9 billion in deal value. At the same time, global venture funding for fintech firms declined slightly to just more than $2.5 billion in the quarter amid 227 deals. KPMG reports that the median size for late-stage venture deals declined in Q2, but rose for angel/seed stage deals and early-stage deals.
In Europe, fintech investment more than doubled in Q2 to more than $2 billion from just $880 million in Q1, the report notes: “While VC investment decreased substantially following a quarter with a number of outlier investments, M&A for the quarter was quite strong and helped to keep total fintech investment high.”
Within the overall fintech sector, regulatory technology — or “regtech” — is seeing a significant increase in investment this year. So far, there has been $591 million invested in regtech across 60 deals in 2017, which is more than the total for 2015 and is on pace to surpass 2016’s total.
Business-to-business (B2B) fintechs are also garnering a good deal of attention. And the report also notes that the promise of blockchain technology continues to attract “significant attention” from traditional corporations.
“The diversity of blockchain prototypes and pilot projects appear to have grown exponentially, including those focused on credit default swaps, supply chains and reinsurance,” the KPMG report says. “The challenge with blockchain continues to be the lack of implemented production systems. Over the next few quarters, there needs to be a shift from proving the technical capabilities of blockchain prototypes to proving that blockchain can create value by transforming different organizational functions.”
At the same time, the report says that the focus on B2B offerings, “will likely continue to grow” as traditional banks recognize the need to significantly reduce their operating costs in order to compete leaner rivals.
For the remainder of the year, blockchain, artificial intelligence, cloud computing and robotics are expected to remain hot, the report suggests.
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