B2B Payments

Is B2B FinTech Heating Up At The Wrong Time?

PYMNTS

The tallies are in: Innovate Finance has calculated the state of investment in FinTech for 2015, and we have the numbers.

Innovate Finance released The 2015 FinTech Investment Landscape this month, a report that offers a snapshot at how investors are placing their money among financial innovators.

The U.S. and U.K. saw the greatest volume of FinTech investment in 2015, a year that saw 860 total deals across 46 countries. It amounted to about $12.5 billion invested in the space in total, researchers said, again with the U.S. and U.K. seeing the greatest value of investments — with China and Germany also securing massive deals, too.

Overall, 2015 venture capital investment levels dipped compared to 2014, though only slightly compared to the fraction of investment seen just three and four years ago.

Global Breakdown

Alternative finance dominated the FinTech investment space last year, and within that arena, the U.S. reigned supreme.

SoFi led the charge securing a $1 billion Series E round last August, just months after a $213 million round. The alternative lending platform focuses on student lending, but some of the top U.S. deals were also joined by B2B companies.

Affirm, for instance, secured $275 million last May and, soon after, announced plans to link businesses operating over Shopify with financing.

Meanwhile, AvidXchange, which provides accounts payable and automation solutions for corporations, also landed among the elite with a $225 million funding round led by Bain Capital in September.

Across the pond, Funding Circle grabbed headlines for its $147 million funding round in April in the U.K.

The B2B FinTech space is making a name for itself among investors, researchers at Innovate Finance found.

A breakdown of venture capital investment by verticals found that, together, data and analytics, wealth management, capital markets and payments made up 25 percent of all deals in the U.K. Alternative finance, challenger banks and foreign exchange players collectively made up 46 percent of funding in the country, though none of these segments secured more than 20 percent of the backing. Consumer-focused FinTech players continue to receive the bulk of support, with peer-to-peer FinTech startups grabbing 22 percent of the value in U.K. investments last year.

Still, however, the deals that are being struck are increasingly for companies that cross over between consumer and corporate payments. Challenger banks, for instance, are largely positioned to fill in the small business lending gap left by traditional FIs in the U.K., while alternative lenders are in the same boat.

2015’s biggest FinTech IPOs highlight the multifaceted nature of the industry, too.

The most notable might be Square, whose long-anticipated debut proved less than expected for some investors. The company is known for its card readers used by merchants for easy card acceptance but has been increasingly upping its B2B game by integrating its payment acceptance tools into companies’ accounting platforms, automating payroll and cash management for clients.

Similarly, while consumer lending firm Lending Club also made its debut just before the start of 2015, small business lending platform OnDeck was right by its side. Analysts pointed out, however, that their stock prices more than halved in 2015, meaning alternative lending is next to banking in terms of the worst-performing industries.

Corporate Venture Capital

Corporate venture capitalists (CVCs) are rising stars among startups. Reports earlier this year revealed that CVCs hit a new record in 2015, linking companies with $7.6 billion worth of investment.

Innovate Finance didn’t miss how CVCs played their role in FinTech. Santander InnoVentures made some high-profile deals with SME finance players Kabbage and iZettle, as well as blockchain startup Ripple.

Citi Ventures supported B2B FinTech companies like invoice financer C2FO, while iwoca got support from CommerzVentures.

According to analysts, corporate venture funds made 25 deals last year in the world of FinTech.

Is This Good News Or Bad News?

The data laid out by Innovate Finance makes one thing clear: The state of B2B FinTech investment is far from absolute health.

Investors and analysts are increasingly concerned about so-called “bloated unicorns,” a bubble of billion-dollar valuations that could render the unicorn badge meaningless. Similarly, major alternative small business lending IPOs fizzled out as the year progressed, with regulation continuing to cast a shadow of possible impending crackdowns on industries like challenger banking and blockchain, both of which could overhaul corporate finance and both of which have yet to see their paths carved out for them among the rulemakers.

Innovate Finance shied away from making any hypotheses about what the data could mean for FinTech startups, but it will sure play out to be an interesting ride as B2B payments and FinTech innovation heats up — seemingly at the same time that venture capital in FinTech startups cools off.

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