Which areas of fintech are attracting investment in your jurisdiction, and at what level (Series A, Series B etc)?
Fintech (2nd edition)
Fintechs active in payments and regulatory applications (‘regtech’) form the current hype on the market. The insurance sector (‘insurtech’) and certain more isolated challenger bank projects should also be mentioned.
The areas of the fintech industry that are attracting the most investment are insurtech, blockchain, marketplace lending, infrastructure and enterprise software, and artificial intelligence. The majority of the investment level these companies are looking to attract is Series A, with some companies at the Series B level. Given that this sector is still rapidly developing in Bermuda, it is difficult to predict which areas of fintech will be the most successful at attracting investment at this stage or which areas of fintech are predominantly focused on Series A over Series B, or vice versa.
Fintech is a rapidly growing sector in Brazil, drawing the attention of global and local investors. There are a couple of main emerging areas of fintechs in Brazil that attract the investor, as follows: (i) Credit and Lending Fintechs such as Nexoos, Payly and Geru which involves Series A-E of investments; (ii) Digital Banking and Payment area such as Nubank who capitalized US$ 400 million at its 7th round of investment’s (Series F); (iii) insurtechs are also growing and attracting investment in the country, for example the fintech Seggui which uses Artificial Intelligence and machine learning to provide a better experience for its custormers; furthermore (iv) blockchain and crypto fintechs also a strong segment in Brazil.
There are a number of start-ups present in each financial services sector: leading among them the payments and remittances sector (Mach, Khipu), followed by crowdfunding and lending (Cumplo, 2ble impacto).
In Chile, we already have companies that have raised Series C funding such as ComparaOnline, an insurance tech company that has raised more than $30 million (USD) according to some public databases. There are several other Fintech companies that have raised Series A, such as Cumplo, Omnibnk, Jooycar, and others raising seed round, like Fintual.
Investment in fintech by venture capitalists and other institutions continues to be strong and healthy in the United States. While there has been some decrease in the number of new fintech start-ups, 2018 and 2019 saw an increase in investment in the fintech sector with payments/billing enjoying the majority of the investments. In addition, important investments are taking place relating to technology in investment management, distributed ledger technology, data analytics, and artificial intelligence. Investments are taking many shapes and, considering that most fintech companies are maturing, tend to be in Series B and C. In addition, M&A activities are continuing to grow in this space, are complemented by key strategic partnerships between banks and fintech companies, and are providing fintech companies additional sources of investment and funds.
Most fintech investment is still at Series A and lower, simply because much of the development is coming out of new start-ups. However, the multiples around fintech are high, such that a Series A can be £5-10 million, or in some cases more.
We’re seeing investment in particular in the following areas: anything which can streamline the client on-boarding process (facial recognition, biometrics etc); mobile banking; wealth management; regtech software; capital markets analysis software; and open banking products.
There has also been a large amount of retail investment in initial coin offerings (referred to as “ICOs”), though this has slowed significantly over the last six months – see question 15 below for further detail.
Most investment is still being carried out at early stage companies by either seed or angel rounds. However, there are several Series A rounds that have been successful in digital lending and payments industry, which seem to be the most attractive subsectors in the past years. Increased interest in money transfer and BPO/Enterprise financial services is also a recent trend. Venezuelan migration to the country has become a driver for money remittances alternatives to traditional banking, mostly based in crypto-currency solutions.
Investment in fintech in the UAE is mainly directed either at businesses dealing directly with consumers, or businesses providing technology solutions to existing financial institutions.
There is also a considerable amount of investment directed at a variety of industries in the UAE, including the educational sector, healthcare sector, insurance sector, and emerging technologies (e.g. artificial intelligence, distributed ledger technology and deep-learning).
The level of investment in fintech differs per area and jurisdiction. In general, the majority of investment in cutting-edge fintech is currently in the Financial Free Zones and at friends and family or Series A level. At least one fintech company has progressed beyond a Series B round of investment, with Dubai-based Souqalmal.com raising USD 10 million in its Series B funding.
The first fintech project entering the sandbox is a collaboration between a commercial bank and the largest mobile carrier in Taiwan, which allows the bank to levy the comprehensive and up-to-date credit record database owned by the mobile carrier and thereby simplify the account opening process. The second sandbox fintech project provides cross boarder wiring services. Other fintech investments in Taiwan also involve (i) internet banking, (ii) providing financial advice through algorithms or even AI or robots, for either discretionary or non-discretionary advice, (iii) blockchain application in various fields, such as cryptocurrency, mobile wallet or alternative payment system, and (iv) peer-to-peer lending platforms.
Many fintech investments in Taiwan are launched by existing financial institution players, such as banks or insurance companies. The development of other fintech investment projects generally reaches the stage of minimum viable products or product market fit after their Series A or Series B financing, and a few fintech companies are considered established players.
Overall, the payments area is attracting the most investment, both in seed rounds and on Series A, B and C level, followed by smaller investments in neo-banking and new types of real estate investment schemes. At this point in time there is approximately 162 fintech start-ups in Denmark.
There was considerable progress in the venture capital environment of fintech start-ups, beginning in 2017. There are today a number of venture capital funds focused on blockchain and fintech projects. A significant number of Swiss banks, insurance companies and other major Swiss market participants set up the Swiss Entrepreneurs Foundation, a fund with a target capitalization of Swiss francs 500 million (USD 500 million). The Swiss financial infrastructure provider SIX also announced the setting up of a Swiss francs 50 million (USD 50 Million) fund for the promotion of innovation in the financial industry. The number of rounds and the relevant figures are comparable for seed, series A and series B rounds. In addition, there are a number of incubators, accelerators and business angel clubs supporting the fintech scene.
Spain has seen an exponential growth in Fintech and Tech investment, with over € 100m raised in capital in 2019. The area of fintech that relates to these investments is extremely varied, including but not limited to peer to peer business and consumer lending, invoice trading, equity-based crowdfunding, payments, etc. However, the area that seems to attract more interest in Spain is peer to peer business lending.
Recently, a Spanish fintech raised the largest Series A funding ever, however, most of the investment in Spain is at Series B or C level.
The FinTech sector in Germany is attracting ever more venture capital investments. Total investments in German FinTech companies reached over EUR 700m in the first three months of 2019, equivalent to 96% of last year’s total. The current strong year 2019 can be attributed so far to some large transactions involving e.g. Raisin, wefox Group, N26, bitwala, FRIDAY. On the basis of these landmark transactions payment services and investment marketplaces (N26, bitwala, Raisin) are still the most attractive FinTechs, but InsurTech (FRIDAY and wefox) is also getting more and more attractive. The rising number of larger deals has pushed the average deal size up from EUR 2.7m in 2014 to about EUR 34m in the first quarter of 2019. The trend looks set to continue as the FinTech landscape in Germany matures further and more key players establish themselves.
It seems that investment in the P2P lending business is greater in volume compared to other Fintech areas. As proposals relating to P2P lending are pending before the National Assembly presently, it is expected that there will be more investment in the P2P lending business if such new legislation is passed and in force.
Fintech is attracting investment on basically all levels, including angels. However, competition for investors has grown due to the increasing popularity of fintech and limited investments. Fintech companies have recently received extensive funding, e.g. the blockchain identity verification start up Authenteq which raised USD 5 million in a Series A funding which was led by Draper Associates and Capital300, and the crypto fintech start-up Monerium with a USD 2 million round, both in January 2019.
The current market status of investment in fintech in Portugal is rather slow, which we envisage is due to the delay in transposing the PSD2 into national law. As such, the recent enactment of the PSELF approved a new and reformed legal framework for the majority of fintech companies currently operating in the Portuguese market, while simultaneously paving the way for new market players and new types of companies to enter the market and offer their products and services to both consumers and other businesses. It also marked the legal recognition of TPPs, furthering the open banking ecosystem with the surging of new companies or services rendered by already established players – such as payment initiation and account information services.
Notwithstanding, we note that there have been some specific foreign fintech businesses entering the Portuguese market, although opening branches or subsidiaries and not providing direct investment in new Portuguese-based projects. Exception to this is the new crowdfunding platforms which have been accompanied by the correspondent surge in new players managing such platforms.
Several FinTech companies across sectors such as mobile technology, data analytics, digital lenders and online payment solutions have received foreign investment (both internal and external rounds of funding). 100% foreign direct investment under the automatic route is permitted for FinTech companies that are regulated by the RBI or any other financial services regulator in India, subject to certain compliances such as minimum capitalisation norms. Given the FinTech sector in India is in its growth stages, it has consistently attracted investments from domestic as well as foreign investors. Generally speaking, FinTech sector is fairly mature and several FinTech companies have raised investment ranging from Series A-Series D funding.
FinTech investment is mainly focused on the seed and pre-series A stages. We are still waiting for our first Series A investment in FinTech. The segments of FinTech companies that have received funding are the following:
- Lending, like Independencia and Apurata.
- Payments, like Culqi.
- Marketplace, such as Innova Factoring and Innova Funding (factoring).
The largest bank in Peru, BCP, has set up a dedicated corporate venture capital arm and has already made two acquisitions. Endeavor Peru, an important international organization dedicated to the development of entrepreneurship, has recognized two FinTech companies with significant impact (Latin FinTech and Zest)
From the publication of the National Plan for Competitiveness and Productivity, investments in FinTech's business models are expected to increase, from the creation of the Entrepreneurial Capital Fund (Fondo de Capital Emprendedor), which would place capital in specialized private funds in exchange for one share, to investments in dynamic and high-impact ventures that seek consolidation and escalation. In this way, the emergence of FinTech business models is promoted in Peru with the high impact and benefit that this entails for financial inclusion; and it is expected that this will be the initial step for a comprehensive policy of support to entrepreneurs in our country.
According to an unofficial survey and check made by an independent non-profit organization which assists startups in Israel, there are currently around 430 active fintech startup in Israel in 2018.
The said survey categorized the active fintech projects according to their field of operation:
- Trading and investment – approx. 29%
- Payments – approx. 23%
- Enterprise Solutions – approx. 15%
- Anti-Fraud, Risk & Compliance – approx. 13%
- Lending & Financing – approx. 10%
- Personal Finance Management – approx. 6%
- International Money Transfer & Currency Exchange – approx. 4%
Please note that these numbers relate to the number of projects, regardless to their scope, no. of employees, amount raise, etc.
The said survey focused, among other things, on Insuretech companies. The service shows a steady increase in the number of Insuretech companies, from 27 companies in the year 2014 up to 66 companies in the year 2018. The survey also checked the capital raised in during these years, which varied from US$7m in 2014 up to US$199m in 2017. The capital raised in 2018 was US$57m.
Among the leading fintech companies mentioned in this survey:
- Payoneer: a leading cross-border payment platform.
- Lemonade: digital insurance, mainly active in the US.
- Bluevine: an invoice factoring and business line of credit provider.
- SafeCharge: a global omni-channel payments service provider for online merchants.
- Superderivative: a provider of cloud-based, real-time market data, derivatives technology, and valuation services for the financial and commodity markets.
- Behalf: an alternative financing provider that specializes in working capital credit for SMEs.
Please note that most of these fintech companies were innovated by Israelis but are operating outside Israel and some of them started their operations and incorporated their business outside Israel, from the first place oe were later acquired by international players.
According to this survey, Israeli Fintech startups have raised more than $1.8B in total across 211 deals since 2014.
Depending on the stage which they have reached, fintech companies are primarily financed by regular seed capital providers, such as angel investors and early-stage venture capital funds. Research conducted by KPMG (https://assets.kpmg/content/dam/kpmg/xx/pdf/2019/07/pulse-of-Fintech-h1-2019.pdf) shows that later-stage venture capital funds and private equity funds are also increasingly aware of the potential of the fintech sector. Crowdfunding is another way to fund start-ups, including fintech companies.
The Netherlands is also home to numerous start-up accelerator programmes. The Dutch government aims to make the Netherlands the best start-up ecosystem of Europe – a ‘unicorn nation’. The most important programme is TechLeap (previously called StartupDelta) (www.techleap.nl). The Dutch government has made €65 million available for start-ups and scale-ups, including €35 million in funding for TechLeap. Multiple subsidies are also available for fintech companies in the form of loans provided by the Dutch government on interesting terms. Examples include the innovation credit (https://english.rvo.nl/innovation-credit), government guarantee for SME loans (borgstellingskrediet, https://www.rvo.nl/subsidies-regelingen/borgstelling-mkb-kredieten-bmkb) and the possibility for closed-end venture capital funds to obtain a subordinated interest-free hybrid loan from the Dutch government to finance one or more investments in tech start-ups (https://english.rvo.nl/subsidies-programmes/seed-capital).
It depends on the relevant projects/companies and no typical pattern exists. Generally speaking, it is rare for foreign investors to make early stage investments in Fintech companies in Japan since domestic investors have a strong interest the industry. Due to ease of communication and language facility, Japanese Fintech companies tend to rely on domestic over foreign investors at such stage.
Jersey has been attracting investment in a variety of areas of fintech. These can be grouped as follows:
- Initial Coin Offerings; ("ICOs");
- Security Token Offerings ("STOs");
- non-security token issuances;
- Cryptocurrency Exchanges (Virtual Currency Exchange ("VCEs"));
- Security Token Exchanges;
- Custody of digital assets;
- Jersey funds investing in digital assets;
- Payment services; and
Jersey has recently seen an influx of potential security token exchange platforms and Carey Olsen is working closely with credible promoters to advise on these matters. Crucially, in Jersey, there is no requirement to have electronic clearing and settlement or for clearing of security tokens to be carried out by a clearing house or central depositary which enables exchanges to provide on chain settlement. The JFSC have indicated that security token exchange businesses will be required to be regulated under the FSJL to undertake “investment business”. By comparison, VCEs benefit from lighter regulatory treatment.
Due to the upcoming Liechtenstein Blockchain Act and the already open attitude of the government and regulator towards the crypto economy, companies are increasingly preparing to obtain the required licences to implement fully regulated crypto exchange projects (trading of digitalized assets) and/or crypto banking services. Some projects are start ups with typical investing schemes, other projects have partnered with already established players in the crypto world or in conventional finance.
In accordance with the “Report on Fintech in Latin America 2018: Growth and Consolidation” (IDB, 2018) the lending segment has been the main area attracting investment, with the real-state crowdfunding sub-segment and wealth management areas experiencing exponential growth; because of the novelty of the Fintech sector (and the relative lack of confidence of capital funds), most funding have taken place at a Series B or C levels, nevertheless the lending FTI Konfio platform Series B US$10 million funding is noteworthy as an exception to this situation.
In general, FinTechs that are active in the fund, banking or payment industry are attracting most investments in Luxembourg.
The most prominent fintech areas attracting investment in Malta mostly relate to e-payment services, insurtech, ICOs and blockchain solutions. Many businesses setting up in Malta majorly involve crypto-exchanges, brokers, wallet providers, and ICO issuers. The levels of newly-established fintechs in Malta range from well-established companies with names in other jurisdictions (Series C) who set up their head offices or branches in Malta to other start-ups (Series A and B) who are either in the process of optimising their business models and products or those who are past development stage and invest their resources in expanding their reach.
Fintech investment in Malaysia is a mixed of Series A and Series B investments. For instance, Jirnexu a Malaysian founded fintech company has received a US$10 million in its second Series B investment (RM41.7 million), bringing its total funding up to US$27 million. Jirnexu is known for operating RinggitPlus, one of the well-known comparison platforms for products like credit cards, loans and insurance. Jirnexu gains its investment from Experian, a consumer credit information company which aims to help users manage their financial data, and also utilises the investing in start-ups strategy to stay ahead. In 2013 Jirnexu had launched RinggitPlus for the Malaysian market. Jirnexu’s first financial comparison website gave end users a handy tool to research the best banking or insurance product for their needs, without the hassle of visiting five different websites to do it.
Besides that, Sumimoto Mitsui has invested into a Malaysian fintech company, Soft Space for both Series A and Series B. Soft Space is a digital payments company that focuses on the development of innovative solutions for the electronic banking and payment industry. Apart from that, MyCash Online is another example of a Malaysian fintech company. MyCash Online is an e-Marketplace specially designed for massive pools of Migrants in Malaysia & Singapore. MyCash Online is offering easy, secure and convenient online services to the foreign workers, who do not have access to online banking or credit cards.
As reported by Accenture, a total of US$735 million was raised in funding by FinTech companies in Singapore in the first three quarters of 2019 – seed funding had fallen 56% compared to 2018, while series funding has grown by 66%. According to Accenture, FinTech startups in the payments space have been attracting the most investment in Singapore, with approximately 34% of the total investments going to these businesses. Insurance tech startups have also been heavily invested into, garnering 17% of the total funds raised.
The rapid development of technology, including Artificial Intelligence, Blockchain, Cloud Computing and Big Data, has brought tremendous changes in the financial services model. Based on our observations, the following areas are the main fintech areas that are attracting investment in China:
- Payments and e-wallets
- Supply chain and consumer finance
- Online insurance
- Personal finance management
We see fintech entrepreneurial projects from early stage to pre-IPO stage in roughly equal numbers, as well as some fintech IPOs.