Overall Numbers are Down, But Banks Step Up Their Game
According to a new report by Singapore-based venture capital firm Life.SREDA, last year was a mixed bag for fintech.
On the one hand, the Money of the Future Report pegs 2016 as the first year to have an overall decrease in fintech funding after taking into account any outliers. By their calculations, dealflow slowed in the last couple of quarters of the year, while the amount of funding flowing into fintech fell 6% to $19.1 billion.
On the other hand, the one deal that was considered an outlier was a big one: Alibaba (BABA) affiliate Ant Financial, the world’s second-largest unicorn (behind Uber), raised a Series B of $4.5 billion in early 2016. That’s the largest ever fundraising round for a private tech company.
Further, for the deals that were done in 2016, one could say there was an element of quality over quantity. Established financial institutions are no longer sitting on the sidelines for fintech – in fact, banks have increased the number of investments in VC-backed fintech companies by 61% since the previous year.
Who's Banking on Fintech?
Some banks are more active than others.
JP Morgan (JPM), at one end of the spectrum, only booked three fintech deals last year, which is the same as they did for 2015.
Companies like Barclays and Goldman Sachs have more of a shotgun approach: get in on as many fintech companies as possible. Barclays invested in 23 deals in 2016 for a 53% increase in activity, while Goldman got in on 17 deals for a 31% bump in activity.
Partnerships and product integrations, accelerators and innovative labs, direct investments and venture debts, corporate VCs and fund-of-fund investments — banks started to use all available mechanisms in order not too lose in the digital war with the new hungry players.
Even though Barclays (BCS) and Goldman Sachs (GS) are both heavy investors in the space, each has a different rationale behind their tactics. Goldman Sachs invests in fintech startups solely with expectations of a financial return, while Barclays and banks such as BBVA are looking for more strategic investments that can also enhance their core businesses.
Regardless of the differing tactics and rationales, it looks like banks are officially in the tech game for good. The question is: can hulking, conservative institutions like banks be agile enough to make use of these upcoming investments – and will they pay off?
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