Global FinTech financing hit a new record in 2018, according to a report from market intelligence firm, CB Insights. But while the US remains the epicentre of this sector, all that could change in 2019, as Asia snaps at the US’ heels.

Last year, VC-backed FinTech companies raised $39.57 billion across 1,707 separate deals worldwide. Deal numbers were up 15 percent year on year, while funding surged 120 percent on the back of 52 mega-rounds (of $100 million plus), worth a combined total of nearly $25 billion.

Sixteen new FinTech unicorns (firms valued at $1 billion or more) were born in 2018, with five in Q4 alone – Plaid, Brex, Monzo, DevotedHealth, and Toss. In total, there are 39 FinTech unicorns on the planet, worth over $137 billion.

But despite the health of the market at the top end, early-stage FinTech deal activity slowed down last year, according to CB Insights. As a percentage of the overall funding market in the sector, early-stage deals fell to a five-year low as investors concentrated their bets on the perceived winners.

Global seed and Series A FinTech deals still grew in 2018, at five percent year on year, but fell as a percentage of all deals, to 57 percent. Meanwhile, US early-stage deals were flat year on year, as investors circled the unicorns – 24 of which are based in the US. The Western VC-backed FinTech market, then, appears to be consolidating.
Yet FinTech is happening on global scale, of course, with investments outside of the three core markets (US, China, and the UK) accounting for 39 percent of all deals last year.
Asia tilted at the US windmill as the lead FinTech market, with a surge in early-stage and mega-round investments in 2018. It saw the biggest boost in deals, growing 38 percent year on year, with a record level of funding ($22.65 billion across 516 investments).

This suggests that Asia could be poised to overtake the US as the world’s FinTech hotspot, says the report. However, the US hung onto the number-one slot last year, with 659 investments worth $11.89 billion.

Europe saw a pull-back in deals to 367, but funding topped $3.53 billion, an annual record. Nonetheless, the figures show that deal numbers grew in every market except Europe in 2018.

While the UK remains a significant FinTech player, with three home-grown unicorns (TransferWise, Revolut, and Monzo) against only two others in the whole of Europe and Scandinavia, the UK’s future as a financial services hub must be in doubt as Brexit uncertainty deepens.

Bloomberg’s Brexit impact tracker reveals that 20 or more banks and financial services companies in the City are either closing offices, laying off or relocating staff, or moving money and/or operations out of the country.

One of them is UK unicorn TransferWise, which is opening an office in (ironically, for the UK’s Brexiteers) Brussels, where it is applying for a European licence. FinTech and RegTech are heat-seeking markets, so the question must be: How long will players continue to see London as Europe’s financial centre?

By contrast, South America reached a turning point in investors’ eyes last year, despite political turmoil of its own across the region. Funding there topped $540 million across 55 deals, a new annual record.

However, investors began to pull back in South America in the second half of last year, as social, political, and monetary conflicts made their marks, according to CB Insights’ commentary. Despite this, Brazil-based NuBank became the region’s first unicorn, closing out 2018 with a $90 million tranche from China’s Tencent.

So what of the immediate future for the world’s FinTech market?

IPO activity is likely to remain lacklustre over the next 12 months, says CB Insights’ report. An emerging theme for 2019 will be a tighter focus on regulatory finance, it adds, suggesting that RegTech may be the real pearl for investors this year.

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