Which areas of fintech are attracting investment in your jurisdiction, and at what level (Series A, Series B etc)?
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 a few insurtech 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.
There is no data on the prevalence of Series A, B or C financing. We would anticipate that due to the early nature of many fintech businesses and from our experience, a majority of the investment is in Series A.
The Cayman Islands is a well regarded jurisdiction for the establishment of investment funds, many of these invest in crypto-assets. Further, there has been a substantial increase in the use of a Cayman Islands issuer in respect of initial coin offerings (ICOs) and several crypto exchanges have been formed using a Cayman Islands entity.
The Cayman Islands government and the financial services industry strongly supports investment in fintech.
Fintech investment in Cyprus is mostly Series B and C in nature as opposed to Series A.
Many CySEC-authorised investment firms and investment funds have started to become involved in the trading of crypto-assets with prominent blue-chip institutions abroad. Recent CySEC circulars has clarified and strengthened the basis of such trading.
The fintech sandboxing programmes relating to API Banking (see above) have further strengthened the participation of some Cypriot credit institutions in this area as well.
Finally Cyprus hosts the University of Nicosia (UNIC), which is the world’s first university to accept tuition fees in crypto-currency. In addition UNIC staff have been a powerful and beneficial voice on–island for the dissemination of new ideas in the jurisdiction.
According to data from Nordic Tech List, Danish fintech companies raised cap-ital in the amount of 65m EUR spread across 12 companies in 2017, of which 7m was pure seed capital. The area for payments received the largest portion of investments in 2017 - around 50m EUR. The current number of fintech startups in Denmark is around 200.
Especially corporate solutions and infrastructure have attracted investment. For example, a Finnish fintech Zervant, providing online invoicing software for small business and entrepreneurs across Europe, had a successful financing round in 2018.
Crowdfunding is another field which has attracted interest and investment. Many of the crowdfunding platforms are already well established, such as Mesenaatti and Invesdor that was chosen as the winner of the finance technology category in the Finnish finals of the Nordic Startup Awards in 2018. Fellow Finance has grown to be an international crowdfunding company listed on the Nasdaq First North Finland marketplace.
Fintech is attracting investment also on other fields, in particular in payments, and also in the form of fintech acquisitions. For example, a Finnish payment service provider Maksuturva was acquired by the Swedish Svea Ekonomi in 2018.
In general, there is a large and growing interest towards new kinds of payment and financial services, and many of these kinds of businesses are past the experimental phase. The investments we have already seen have mostly been seed-stage, but fintechs are growing fast, and attract more investment.
The French Fintech industry consists of 750 FinTechs reported to be particularly competitive in four areas: payments and electronic currencies (24 payment institutions registered with the French banking regulator); robo-advisers; crowdfunding (170 platforms ); and online bank services. They offer innovative solutions regarding new methods of payment; dematerialisation of currency; disaggregation; cashless transactions; interconnection; connection between buyer and seller; trading robots; alternative loan platforms; savings management; process outsourcing; automated investors; and fund-raising.
Source: Groupe la Française: Landscape 2018 Fintech analyses
The transactional value of FinTechs in France was USD72 billion in 2016 and is expected to be around USD145 billion in 2021. Investments in FinTechs jumped from EUR57 million to EUR172 million (a 300% increase) between 2014 and 2016 and are still increasing. Investments in FinTechs jumped again to reach EUR 318 million (184% increase) in 2017. In 2017, French FinTechs made many successful fund-raisings: Tinubu Square raised EUR53 million.
According to the French national bank , France is the EU Member State with the greatest use of online banking services, the second biggest crowdfunding market (after the UK) and one of the most dynamic markets in Europe for payment innovations.
According to a Deloitte survey , the products and services offered by leading French Fintech companies are still underused by French consumers. France’s adoption rate (ie the percentage of customers using at least one non-traditional firm for financial services) is only 36%, compared to 85% in China, 80% in India, 50% in the UK and 45% in the US. Account aggregation (used by 9% of French consumers), financial planning (6%) and participatory financing (6%) are the most used Fintech innovations in France. This is largely due to the fact that Fintech services and products are still relatively unknown to the public: while 38% of French consumers were familiar with crowdfunding services, only 28% had ever heard about account aggregation and financial planning. According to this survey, once consumers know about those services and products, they show a high level of interest, which leads us to believe that the Fintech market has strong development potential. The number of potential users for Fintechs in France was estimated to be around 80 million in 2017 and is expected to grow to 95 million before 2020. This represents a very important investment horizon.
Data on investment trends are currently not readily available. With regard to the number of users, payment services are still the most used FinTech services in 2018, but InsurTech services are catching up and supposed to have the largest number of users in 2019 (https://de.statista.com/outlook/295/137/fintech/deutschland#market-revenue).
Gibraltar has been attractive to high profile businesses dealing with, or otherwise concerned with:
- the use of DLT, to store and transmit cryptographic assets;
- electronic money;
- payment services; and,
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 and ICO issuers. The levels of newly-established fintechs in Malta range from well-established companies with big 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 are investing their resources to expand their reach.
The main areas of fintech attracting investments in Israel are payments (this sector accounted for approximately 30% of fintech funding in 2018), trading and investing, anti-fraud, personal finance, lending and financing, insurtech, trading, investments and blockchain. The majority of companies that raised funds were either bootstrapped or seed companies.
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.
Equity finance has become a useful tool for Fintech companies, both crowdfunding and e-money institutions in Mexico, depending on the stage of development of each company. Based on a venture capital report published by MassChallenge (CUOQ, Kenny et al, MassChallenge Mexico, Levantamiento de Capital Guía Especializada sobre financiamiento e inversion para emprendimiento de alto impacto en México, 2018), several Mexican entrepreneurs in the seed stage (0 to 2 years) are recurring to Series Seed Capital through Angel investors for amounts varying from 10,000 to 500,000 US Dollars (USD), while start-ups in the growth stage (2 to 5 years) are being funded by Venture Capital Funds (both Series A and B) in amounts varying from 550,000 to 5 million USD.
British Virgin Islands
The BVI is attracting ICO structures as well as setting up crypto exchanges. The level of investment can vary from seed capital to fintechs seeking series B funding.
SSEK: Based on the past couple of years, peer-to-peer lending appears to be the most popular investment choice for venture capital, with many of the investments being Series A investments.
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 legal act transposing the directive shall approve 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 shall also mark the legal recognition of third party providers, furthering the open banking ecosystem with the surging of new companies – 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 up 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.
KPMG reporting indicates that fintech investment in the US reached $5.8 Billion in Q4 2017, accounting for nearly two-thirds of global fintech investment. Payments and lending services attracted the most significant investments, while insurtech solutions are starting to gain traction after historically lagging other investment opportunities.
Of the top 10 fintech deals in Q4 2017 reported by KPMG, three were buyouts, five were M&A transactions, along with one Series D and one Series E investment.
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 in general (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. Not many fintech companies have progressed beyond a Series A round of investment.
The amount of investment in Ukrainian startups is up sharply on last year. Local tech firms have raised $265 million over the last year. Most of them are private venture investments.
Ukraine’s tech companies have conducted a record-breaking number of successful ICOs. There were 19 successful ICOs from Ukraine that resulted in companies raising about $99.3 million. The three most successful at it were TaaS ($7.5 million), DMarket ($10.5 million) and Rentberry ($30 million).
This has proved Ukraine is one of the world leaders in crypto-economy development, adopting the new technologies at the same time as more developed countries.
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 announced that they will found 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. Nearly Swiss francs 1000 million (USD 1 billion) was invested into Swiss start-ups in 2017, many of which into fintech start-ups. While the number of rounds is about equal for seed, series A and series B rounds, about Swiss francs 46 million (USD 46 million) went into series A and Swiss francs 60 million (USD 60 million) into series B. In addition, there are a number of incubators, accelerators and business angel clubs supporting the fintech scene.
Due to the large amount of cash in circulation and resulting market potential, the Payments segment has attracted the majority of fintech investment in India. Several international companies such as Softbank, Amazon, Google and WhatsApp have invested in the Indian payments space. While Amazon has made greenfield investments into India by setting up and licensing its own payment system in India, Softbank and Berkshire Hathaway have invested a combined 1.7 billion dollars in One 97 Communications Private Limited ((the operator of the ‘Paytm’ mobile payments platform)) for its 10th and 11th funding rounds respectively. Google and WhatsApp have tied up with Indian banks to facilitate digital payments on the UPI platform through the launch of their own apps. India is now the largest user of mobile data in the world. This has facilitated massive growth in digital payments. The volume of digital payments in India is estimated to grow beyond USD 500 billion (approx. 15% of GDP) by 2020. Aside from digital payments, 27% of fintech companies that have obtained funding are in the alternative lending segment, out of which 27% have raised Series A capital. As per some reports, for the first 9 months of 2018, Fintech startups in India raised a combined 1.6 Billion USD across 99 deals at various stages.
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.
Especially fintechs that are offering innovative payments, identification and security solutions are attracting significant investments in the Netherlands. The level at which investments in fintech start-ups and scale-ups are made, does not significantly deviate from the overall level of investments in similar stage non-fintechs with a relatively high percentage of investments as seed capital and in the series A. Looking at deal value, the Dutch PI Adyen leads the ranks with their IPO during the end of Q2 of 2018, as a result of which Adyen was valued around 7.1 billion euro (at the time of the IPO).
In recent years, artificial intelligence (AI) and consumer financing are the two fintech areas that mostly attract investment, whereas before 2014 internet payment, cloud computing and asset management were the hot destinations in China for both domestic and international venture capitals.
Based on our observations, among Chinese fintech companies, most of them are in their early stage of financing (Series Angel, pre-A, A and B). However a few of them have developed into a unicorn company, if we use a valuation exceeding US $1 billion as a threshold (the most notable companies include Ant Financial, JD Finance, Webank and Lufax), or have successfully achieved an IPO in overseas stock markets (such as Yirendai, Qudian, 51 Credit Card and Dianniu98).
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.