The third quarter of 2016 saw European fintech deals fall 17% quarter-over-quarter as fintech funding in Europe dropped 43% over the same time period to $233m ($218.6m) across 38 deals, according to the latest report The Pulse of Fintech from KPMG.
VC-backed fintech investment in Europe declined in Q3’16 following the Brexit vote and resulting market uncertainty. The UK vote to leave the EU and the resulting effects on growth expectations and interest rates may have had an impact on VC investment in the UK, according to the report.
“Investors displayed caution, putting deals on hold and passing on funding opportunities for new startups, especially in crowded spaces like lending. The most notable deal during this period was to Velocity Mobile, a payments firm, that attracted $22.5m in Series B funding,” it reads.
Fintech companies are responding to these changes in investor confidence by shifting priorities. The race for scale is evening off as companies focus more on the bottom line, reducing costs and pushing toward profitability.
“Despite these challenges, the UK is still well-positioned to maintain its spot as a fintech powerhouse, especially once investor confidence begins to recover in coming quarters. Post-Brexit, the UK may even be able to offer advantages over other European nations that will enable fintech to thrive,” the report reads.
Meanwhile, Germany outpaced the UK in terms of fintech funding for the second consecutive quarter, with 35% more funding raised by German-based VC-backed fintech companies than those in the UK.
For the second quarter, Germany’s fintech market received more VC investment than the UK, attracting $105m versus the UK’s $78m, as “efforts are underway to promote the fintech ecosystems in Berlin and Frankfurt, in an attempt to lure fintech startups from London”.