Investment in financial technology nearly tripled in the U.S. in 2014 over 2013, building on a compound five-year annual growth rate of 56.6% from 2010 to 2014. In 2014 fintech investment deal growth in New York pulled ahead of all other markets evaluated, for the first time since 2010.
U.S. fintech deals and investments hit $9.89 billion spread over 493 transactions in 2014, according to an analysis by Accenture of data compiled by CB Insights. This compares to $3.39 billion spread over 494 deals in 2013.
In 2014 New York deal value grew to $768 million, a 32% increase over 2013 that enabled it to overtake fintech deal growth—by percentage growth rate—in Silicon Valley, other U.S. markets, and globally. Global investment itself tripled during 2014, rising to $12.2 billion from $4.05 billion in 2013.
Fintech New York: Partnerships, Platforms, And Open Innovation was produced by Accenture and the Partnership Fund for New York City. The organizations released the report during the recent FinTech Innovation Lab Demo Day. (See, “Can fintech halt elder financial abuse?”)
What’s source of growth today?
The increase in fintech investment comes from two major sources now, according to the report.
One is venture capital. The report states that the venture capital community sees fintech as “the next frontier.” Many opportunities in media and retailing have already been well worked over by venture capitalists, the report indicated, and they now see that “financial services, for the most part, is a growth play.”
The other source of growth is existing major financial services companies, according to the report.
“They are embracing things like cloud technology, mobile wallets, and blockchain to fundamentally re-examine their business and operational models,” the report said. As a result large banks and insurance companies are investing in fintech venture capital funding, incubators, and startups. (The New York FinTech Innovation Lab itself is backed by about two dozen large financial services companies.)
The report indicated that banks have had a change of heart on innovation investment:
“In order to keep up with the significant advances in digital technology, banks are forging closer ties with the fintech community,” the report states. “The narrow view that all innovation and development needed to come from within—also known as the ‘not built here syndrome’—has started to fade.”
“Banks realize that the brightest minds aren’t always inside their four walls, and that they need to look to the fintech community for additional inspiration and to help steer them towards open innovation.”
The report noted that David Reilly, Bank of America’s chief technology officer, has stated that of the 230 companies that have attended its own annual Technology Innovation Summit, B of A has taken on around 16% as vendors. (For a conversation with Reilly about data security, see “David Reilly’s quest: Data that’s portable yet secure.”)
Where fintech investments go
The report indicates that the types of fintech innovation being backed is evolving. Until recently, fintech was almost synonymous with payments technology, but that space has grown very full. The study found that, looking solely at New York, payments-related investment hit 33% of the deals (by number of deals) done in 2012, but had fallen to a share of 21% in 2014—a tie with lending investments.
The trend becomes more dramatic when viewed by dollars. In the U.S. overall, lending was the second biggest category of fintech investment—16% by deals and 25% of deal values. In New York, lending was 21% of the investments by deal, and 47% by dollar value—the latter figure dominating the mix of deals by far.
The report credited the shift towards lending to some banks’ own reticence to lend: “As banks have pulled back from making loans, disruptive companies have filled the void.”