The Climate is Ripe for FinTech

Posted by | October 10, 2016

Recently, I had the opportunity to deliver remarks on the state of FinTech investing at the University of Pennsylvania’s Aresty Institute of Executive Education. The audience, visiting from China-based HNA Capital, contributed to a lively two-way discussion.

It was a time to reflect on post-recession FinTech trends and debunk the theory that investment into the sector is a recent phenomenon. With an increase in both volume of deals and investment flow, the industry is experiencing a period of tremendous growth. But, while traditional venture capital firms are now beginning to pay more attention, corporate venture capital, particularly in the banking sector, has always allocated resources to emerging technology trends and external startups.

With the accelerated pace of globalization and the stringent current nature of regulatory reforms, the climate is ripe for FinTech to disrupt a handful of sub-sectors. It has also given innovators the confidence to question the status quo and build new tools to conquer previously neglected deficiencies.

Moderate, steady growth in the early portion of the decade has been leapfrogged by a bullish two-year explosion in 2015 and 2016. This year, projections indicate a plateau around $20 billion in annual investment. It’s no small feat to wash away previous high-water marks, with the industry climbing to 4x 2013 levels[1]. With that said the market is getting crowded and investors are focusing on more mature opportunities, such as companies with products or services closer to commercialization.

At Safeguard, we have a track record of deploying growth capital in the banking, regulatory and payment industries. In February 2012, we partnered with Connecticut-based Lumesis to help launch its DIVER platform offering the municipal bond marketplace tools for credit, regulatory and risk analysis. In the following years, Pneuron (2013) which offers unique and innovative business orchestration software, and Transactis (2014), a leading institutional e-billing and presentment company, joined as Safeguard partner companies.

FinTech continues to be a critical pillar of interest for Safeguard and we see opportunities across several important verticals, including business intelligence and analytics for institutional and capital markets, insurance technology, regulatory and compliance technology and certain applications of blockchain.

Clearly, we are not alone in this endeavor, as North America accounts for 52 percent of all industry investment (KPMG/CB Insights, 2016). While macro-economic factors (i.e. Brexit, a U.S. presidential election) may loom large in Q4 2016, this sustained uptick is likely to continue in 2017. A new generation of consumers and businesses in financial services are clamoring for quicker, more efficient digitally-enabled solutions, and Safeguard aims to deploy capital and expertise in support of innovative technologies and entrepreneurs that fill this gap.

Investors are beginning to realize the value of FinTech investments made years ago, so it’s not surprising that after an early wave of capital deployment we’re seeing a subsequent ‘boom period’.

Welcome to the new normal.

[1] KPMG/CB Insights “The Pulse of FinTech Q2 2016”, August 17, 2016

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