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European fintech investments rise rapidly

The UK and German markets have seen rises in investment in financial services technology (fintech) just as fundraising and deal activity in China that had soared a year earlier ground to a halt in the first half of the year. According to Accenture, the total value of fintech deals globally in the six months ended June 30 was $22bn, compared with $31.2bn in the same period of 2018, a decline of 29%. The drop was due mostly to the lack of a giant deal like Ant Financial’s record $14bn fundraising in May 2018. Discounting that transaction, global fintech investments would have climbed 28% in the first half of 2019 over the same period last year.

The value of deals in the US in the first half of 2019 jumped 60%, to US$12.7 billion, even though the number of transactions was virtually unchanged from the first half of 2018 (564 vs. 563), signaling a trend of larger deals in the world’s biggest and most active fintech market. The largest portion of funding, 29%, went to lending startups, followed by those in payments, with 25% of the total. The largest deal was the $1n that consumer finance fintech Figure Technologies Inc secured from a credit facility in May.

Fintech investment in the UK nearly doubled, to approximately $2.6bn, and the number of deals jumped 25%, to 263, as challenger banks and payments companies continued to draw investors’ interest. For example, Monzo raised $144m in June; Starling Bank raised $211m from two separate transactions in February; money-transfer startup TransferWise closed a $292m deal in May; and WorldRemit raised $175m in June.

“There’s been a lot of interest and demand from consumers for new fintech propositions, particularly in the UK and elsewhere in Europe, which helps explain the big jump in investments there,” said Julian Skan, a senior managing director in Accenture’s Financial Services practice. “Fundraising is also moving to support the scaling up of challenger and collaborative fintech, which will cause lumpiness in some rounds as we get to the business end of the investment cycle where investors look for returns based on a sustainable bottom line, rather than another buyer. However, the question is: How long can that last? Fundraising is likely to reach a plateau soon and will most likely dip going forward.”

Other European markets also made big strides, with investments in German fintechs more than doubling in the first half of 2019, to $829m from $406m in the same period last year. Fundraising in Sweden more than quadrupled, to $573m, while fintechs in France raised $423m in the first half of 2019, 48% more than a year earlier.

Investments into payments startups and those in lending took the bulk of global fintech fundraising, accounting for 28% and 25% of the total, respectively, while insurtechs raked in 14%.

 “Increased activity in many markets is a good indicator of the level of confidence many investors have in the fintech industry,” said Piyush Singh, a managing director at Accenture who leads its Financial Services practice in Asia-Pacific and Africa. “Startups and the solutions they offer are maturing, which bodes well for traditional institutions partnering with fintechs and for innovation in the financial services industry as a whole.”