As the firm itself pushes additional resources into its blockchain division, KPMG pinpointed how much fintech investment grew during the first half of this year.
According to KPMG’s Pulse of Fintech report, investment in U.S.-based fintech companies surged to $14.2 billion across 427 deals during the first half of 2018 as investors poured money into startups in fintech emerging segments such as regtech and blockchain, as well as late-stage companies.
KPMG highlighted fintech investment in the U.S. reached a new high of more than $8 billion in Q2, following a strong first quarter.
Total investment during the first half of 2018 increased from $12.2 billion across 371 deals during the second half of 2017, and included more than 10 $100 million plus mega rounds, including insurtechs Oscar and Lemonade, and blockchain-based consortia company R3.
“Unlike the broader VC market, early-stage fintech companies have continued to attract a solid flow of capital in the U.S., with the several top deals in Q2 going to seed or early stage companies,” said Brian Hughes, U.S. national co-lead partner of the venture capital practice at KPMG.
“At the same time, those able to attract later-stage funding likely reflects investor confidence in their ability to become market leaders, if they aren’t already,” Hughes continued.
During the first half of 2018, KPMG tabulated that venture capital investment in blockchain in the U.S. totaled $858 million, exceeding the 2017 total of $631 million.
“There’s more VC flow available than opportunities to invest — a sign of tremendous growth in the space,” said Safwan Zaheer, financial services digital and U.S. fintech lead for KPMG.
“Investments in blockchain related firms already doubled in the first half of 2018 compared to 2017,” Zaheer continued. “Blockchain has the potential to transform banking services. If banking systems were to be rewritten today they would be based on blockchain.”
Payments companies see strong exits
KPMG noted that the payments and lending sectors continued to be one of the most mature of the fintech subsectors during the first half of 2018, with most investment activity centered on late-stage companies and those companies seeking to exit.
Traditional banks invest in digital banking offerings
During the first half of 2018, KPMG pointed out that a number of traditional U.S. banks expanded their digital banking initiatives.
The report recapped that J.P. Morgan announced the success of a digital bank pilot project and its intent to roll out the digital bank option nationally.
Authors noted Citibank also announced a digital-only bank, while Goldman Sachs announced the expansion of its Marcus initiative to the U.K.
Blank check companies on the rise in the U.S.
KPMG explained that more than 20 new blank check companies — a development stage company that has no specific business plan or purpose or has indicated its business plan is to engage in a merger or acquisition with an unidentified company — were created during the first half of 2018, with more than 25 percent noting their intent to seek out fintech opportunities.
The report stated the use of blank check companies suggests the increasing importance investors are placing on fintech opportunities and the desire to raise the funds necessary to make a purchase when the right opportunity arises.
Upcoming trends to watch
KPMG projected that blockchain, regtech and insurtech are all expected to gain momentum, even as artificial intelligence and robotic process automation continue to drive cross sector-opportunities.
Experts added there will likely continue to be an emphasis on partnering with retailers and aggressive tech leaders globally.
KPMG announces new U.S. blockchain leadership
In light of what the firm shared in its fintech investment report, KPMG then bolstered its human capital within blockchain.
KPMG explained its new U.S. blockchain leadership to drive and expand the firm’s blockchain strategy across its core lines of business — tax, audit, advisory and industries. Arun Ghosh has been named the firm’s U.S. blockchain leader, and David Jarczyk and Erich Braun have been named the U.S. blockchain tax and audit leaders, respectively.
KPMG highlighted Ghosh, who is based in Boston, has extensive experience driving business value by leveraging blockchain, analytics, automation and artificial intelligence for high-tech, industrial manufacturing and life sciences organizations. This includes delivering enterprise-wide transformation programs across commercial, operations, R&D, manufacturing and supply chain business functions.
KMPG shared that Jarcyzk, who is based in Chicago, assesses the complex tax and finance implications of blockchain. He has vast experience in determining market needs in response to tax reform and changes, implementing technological requirements, creating unique data analytics offerings and developing go-to-market strategies.
KPMG added that Braun, who is based in San Francisco, assesses blockchain technology and its impact on organizations and on the firm’s audit practice. He also understands how companies are utilizing blockchain technology and its influence on audit procedures.
“In addition to solving business issues with blockchain, companies need to account for the complex regulatory, tax and trade, auditability, risk and compliance implications that come with any global transaction and exchange,” KPMG said.
“KPMG’s blockchain approach integrates financial management, digital transformation and industry subject matter proficiency to provide businesses with comprehensive guidance on blockchain, from strategy to implementation,” the company continued.
“The experimentation phase for blockchain is coming to a close with companies now embarking on the execution phase,” KPMG went on to say. “It is much more than a technology, serving as a global transaction platform that requires an intimate knowledge of tax, global trade tariffs, financial risk implications and core operations.”