UK fintech funding has cratered after the collapse of payments unicorn Powa
Funding for venture-capital-backed fintech companies fell 41% in the first quarter of the year, according to a new report from KPMG and CB Insights which cites the collapse of London payments business Powa as partly to blame.
"The Pulse of Fintech" shows $162 million (£110.8 million) was invested in 15 UK-based fintech startups between January and April, compared to $275.9 million (£188.8 million) in the fourth quarter and $276.3 million (£189.1 million) in the first quarter of last year. 14 of the 15 deals were in London companies.
Powa was once reportedly valued at $2.7 billion (£1.8 billion) and raised over $200 million (£136.8 million) in less than three years. But it burned through cash at an alarming rate, failed to generate traction for its product with merchants and users, and collapsed into administration earlier this year.
BI has charted the company's spectacular collapse - you can read about it here. Tony Craddock, CEO of industry trade body the Emerging Payments Association, told us at the time of writing that he was worried it would damage UK fintech companies ability to raise money.
However, KPMG acknowledges that there are plenty of other factors that could have dented investor confidence:
Overall, it was a fairly strong quarter given the current levels of uncertainty among European investors resulting from - low oil prices, the deceleration of growth in China, the volatility of the stock market, and the upcoming Brexit referendum. The latter, in particular, may have hindered fintech and M&A volumes to some degree in the first quarter, as investors wait to see whether the UK will leave the European Union. This uncertainty is likely to grow as the June 23, 2016 referendum nears.
$348 million (£238.2 million) was invested in fintech startups across Europe in the first quarter of the year, up from $337 million (£230.6 million) in the first three months of 2015. The number of deals rose to a five-quarter high at 47.
KPMG notes that insurance tech is becoming an increasingly hot area for investors - something we flagged last September. The consultancy adds that "investors are beginning to take note of RegTech (also known as RiskTech) a sub-sector of fintech focused on technologies that can help organizations address risk and regulatory issues." The report says the UK is taking a leadership role in this area, with the Financial Conduct Authority (FCA) opening a regulatory "sandbox" in May to encourage innovation.
Conversely, KPMG says:
Investors have become less interested in peer-to-peer and marketplace lending models given current market saturation and concerns about possible platform failures. While larger peer-to-peer platforms will likely continue to attract investment, smaller lenders may find it difficult.
The peer-to-peer lending industry has had a difficult six months with Swedish platform TrustBuddy collapsing last October amid "serious misconduct" and earlier this month US LendingClub dismissing its CEO and founder over issues of disclosure and changing loans.
In February former top banking regulator Lord Adair Turner also warned that peer-to-peer loans are likely to go bust in large numbers and this week Deloitte issued a downbeat report on the marketplace lending sector, saying it is unlikely to spawn "significant players in terms of overall volume or share."