Fintech funding nosedives in 2016 creating 'perfect storm' for 2017 M&A

In the year of Brexit and Donald Trump’s election to US president, fintech saw a steep fall in new investor cash.

Total funding for U.S. fintech companies and deal activity dropped significantly in 2016, down to $12.8bn from $27bn in 2015, according to a new report.

The decline in new money as well as deals was a direct result political upheaval in the form of the UK’s vote to leave the European Union as well and the election of Donald Trump as well as regulatory uncertainty and a decline in so called ‘megadeals’. This all occurred within an atmosphere of broader investor caution.

The findings, from KPMG's Q4 2016 ‘Pulse of Fintech' report, calculated that on a global basis, total fintech funding declined by almost 50 per cent, falling to $25bn in 2016 from $47bn in 2015.

Activity in the U.S.--including mergers and acquisitions and VC investments –totalled 489 deals in 2016, down from 615 deals in 2015. Total VC investment in the U.S. dropped to $4.6bn in 2016 from $6bn in 2015, while M&A activity fell to just $8bn in 2016, down from $21bn in 2015.

Of course, 2016 was also the year that saw p2p and marketplace lending experience its first major blow up in the form of Lending Club’s corporate governance scandal. The resulting exit of its founder and chief Renaud Laplanche was accompanied by a huge plunge in its share price amid some gloomy predictions for the future of that particular branch of fintech.

Of course there were also swathes of positive statements from incumbents as well as investors into fintech as to the opportunity for financial services’ disruption. Deutsche Bank’s CEO John Cryan even told staff the banking giant’s staff should think more like a tech firm back in September.

The question for all concerned now, is whether the downturn is a healthy correction accompanied by higher than normal levels of uncertainty, or the start of a broader trend for fintech.

"2017 is likely to be a pivotal year for fintech in the U.S. and around the world," said Brian Hughes, Co-Leader, KPMG Enterprise Innovative Startups Network and National Co-Lead partner, KPMG Venture Capital Practice.

"Because valuations have corrected, the market has set up a perfect storm for IPOs and M&A to happen in 2017. An increasing number of exits will likely stimulate demand for new investments thanks to the dry powder already in the market."