<p>1 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Global analysis of investment in fintech 27 April 2017 2 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Welcome to the Q1’17 edition of KPMG International’s Pulse of Fintech report, in which we explore global trends and deal activity within fintech. Globally, fintech investment held relatively steady as the market undertook a reset following a year of uncertainty across North America, Europe and Asia. Mergers and acquisitions (M&A) remained low following a major drop off in Q4’16, while venture capital (VC) funding to fintech took a small dip quarter over quarter. Meanwhile, private equity (PE) investment and deal activity rose slightly. Corporate investors continued to drive fintech investment, with banks, insurance companies and other financial institutions recognizing the need to innovate and making investments accordingly. This quarter, corporates moved beyond traditional direct VC fintech investment and looked towards building partnerships and alliances with fintech companies in order to achieve their objectives. On a regional basis, both the US and Europe started off the year with upticks in fintech investment and deal activity — with Europe in particular experiencing the highest level of investment in years. Asia, meanwhile, saw fintech investment drop, as the lack of mega-deals continued, and China introduced new fintech regulations that may take some time for fintech companies and investors to digest. The rapid expansion of Asia’s fintech ecosystem across jurisdictions and strong ongoing interest in fintech in the region, suggest this decline may be short-lived. Within fintech, payments and lending continued to dominate deals in most jurisdictions, although artificial intelligence (AI), the Internet of Things (IoT), big data, regulatory technology (regtech) and insurance technology (insurtech) are quickly growing on the radar of investors. We examine these results and other trends in this quarter’s report. We also explore a number of questions permeating the fintech market today, including: ― While Q1’17 was quiet, is the tide about to turn for fintech investment? ― How is the revised Payment Services Directive (PSD2) driving fintech activity in Europe? ― What is driving the proliferation of fintech hubs globally? ― Is regtech ready to come into the investor spotlight? We hope you find this quarter’s edition of the Pulse of Fintech insightful. If you would like to discuss any of the information contained in this report, contact a KPMG advisor in your area. © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Dennis Fortnum Global Chairman, KPMG Enterprise, KPMG International Ian Pollari Global Co-Leader of Fintech, KPMG International and Partner, KPMG Australia Warren Mead Global Co-Leader of Fintech, KPMG International and Partner, KPMG in the UK Brian Hughes Co-Leader, KPMG Enterprise Innovative Startups Network, Partner, KPMG in the US Arik Speier Co-Leader, KPMG Enterprise Innovative Startups Network, Partner, KPMG in Israel KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 152 countries and have 189,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. 4 Summary 5 Global Americas 20 29 US 39 Europe © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. 51 Asia 3 #FINTECH 4 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Note: This report covers all mergers and acquisitions, private equity investment types and rounds to VC- backed companies, delineated appropriately. Mega-deals to VC-backed companies from hedge funds or mutual funds are included. All data is sourced from PitchBook. Page 67 details the methodology and definitions used. After a year marked by blockbuster deals, 2017 starts off modestly: Combining venture and M&A investment, fintech deal value in Q1’17 hit $3.2 billion, not a steep drop from the $4.15 billion registered in Q4’16, but a far cry from earlier outlier quarters. Transaction volume steadies: Overall, first-quarter M&A and venture activity stayed at a new subdued level observed over the past 3 quarters, with the first quarter seeing 260 deals closed in the fintech space. VC returns to 2014 levels: In terms of volume, venture financing is now seeming to oscillate around early 2014 or full-year 2013 levels, having fallen from the peaks of 2015. VC investment, however, remains on the historically high end at $2.3 billion. Corporate participation remains at elevated level of volume: Having steadily grown throughout 2014, with a few quarterly spikes since, activities of corporations and corporate venture arms continue to participate in VC financing at an elevated level on a historical basis, with 39 completed rounds reaching $1.2 billion in VC invested in Q1. Late-stage financings decline: After a peak of $16.8 million in 2016, the average VC transaction size dropped in Q1’17 to $11.8 million. However, the median hit a new high of $3.8 million in the same timeframe. Valuations decline at the late-stage: Owing to timing, the median VC post-valuation dropped from $151.3 million in full-year 2016 to $41.5 million in the first quarter of the year. Signifying the temporality of that trend, early-stage VC valuations rose even higher to $41.0 million for the same period. US VC financing sees uptick: Deal flow slumped to a subdued level throughout 2016 in the US, yet Q1’17 saw a slight increase, primarily driven by a doubling of late-stage venture rounds. Europe sees boom in quarterly VC invested: Fintech venture activity in Europe has fluctuated at a historically higher level for several quarters now, yet thanks to several huge rounds, Q1’17’s total of capital invested soared to $610 million, the highest tally in years. Mega-Deals drive Fintech investment in Asia: With several hotspots for fintech yet still being an emerging ecosystem when it comes to venture capital, the Asia-Pacific region sees considerable fluctuation on a quarterly basis in deal volume. Yet mega-deals will still occur and boost overall investment value, whether they are strategic investments or corporations’ establishment of new divisions that attract significant fundings. U$ All currency amounts are in USD, unless otherwise specified, data provided by PitchBook. 5 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH In Q1’17, global investment in fintech companies hit across 260 deals 11 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Global M&A activity in fintech 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. 2015 and 2016 saw such massive sums for overall fintech M&A value that a reversion to the mean, presaged by a downturn in M&A volume first, was likely. Thus, even as M&A activity chugs along at a subdued level, with a mild quarter-over-quarter uptick, another low quarter for M&A value is not entirely unexpected. 0 10 20 30 40 50 60 70 80 90 100 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2010 2011 2012 2013 2014 2015 2016 2017 Deal value ($B) # of deals closed 12 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Global median venture financing size ($M) by stage in fintech 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. $0.5 $0.5 $0.5 $0.5 $0.7 $1.0 $1.0 $1.4 $3.0 $3.1 $2.6 $3.0 $4.0 $5.0 $5.3 $5.9 $7.3 $8.7 $8.3 $11.3 $16.0 $20.5 $15.0 $10.0 2010 2011 2012 2013 2014 2015 2016 2017* Angel/seed Early stage VC Later stage VC $4.3 $5.1 $5.1 $4.0 $4.8 $6.9 $8.0 $6.9 $11.3 $15.5 $13.0 $16.6 $20.2 $31.0 $33.1 $41.0 $52.3 $57.5 $82.0 $103.1 $202.8 $218.3 $151.3 2010 2011 2012 2013 2014 2015 2016 2017* Angel/Seed Early VC Later VC Global median post-money valuation ($M) by stage in fintech 2010 — Q1’17 13 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Global venture activity in fintech with corporate venture participation 2013 — Q1’17 Corporate venture investors often have more incentives to stay active than the typical VC. In light of how elevated their participation in overall VC financing activity remains, it’s clear that corporates’ customary incentives of staying abreast of innovation while also positioning for potential acquisition or partnerships down the road remain intact. VC invested totals often remain robust as well given certain corporations’ penchant for participating in larger late-stage financings, particularly in Asia. Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. “There has been a lot of experimentation and prototypes in blockchain, but the moment has arrived where movement to production and transformation requires critical analysis on a solid fact base that generates business confidence in the validity of production systems development, transformation and it’s commercial benefits. With this confidence, blockchain proponents will have the necessary business sponsorship to unlock the promise of blockchain.” Eamonn Maguire Global Head of Digital Ledger Services, KPMG International, Managing Director, KPMG in the US 0% 5% 10% 15% 20% 25% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2013 2014 2015 2016 2017 Capital invested ($B) % of total deal count 14 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Global venture-backed exit activity in fintech 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. Prior to late 2014, such low exit tallies for venture-backed portfolios primarily made sense given the relatively youthful nature of fintech in general. Now, exit volume still oscillates at a healthier level, even if the small numbers involved on a quarterly basis expose the impact outsized, exits can have on total exit value. 0 5 10 15 20 25 30 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2010 2011 2012 2013 2014 2015 2016 2017 Exit value ($B) Exit count “We know there’s a lot of dry powder in the market and that valuations have adjusted. We know that VCs worked through their portfolios in 2016. With the new US administration coming into place, Q1’17 was less about the past and more about resetting the market for the future. Notwithstanding the slow start to the year, we remain broadly positive on the outlook for fintech investment.” Brian Hughes Co-Leader, KPMG Enterprise Innovative Startups Network, and National Co-Lead Partner, KPMG Venture Capital Practice, KPMG in the US 15 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Global venture-backed exit activity by type (#) in fintech 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook , *a s of 3/31/2017) April 27, 2017. Global venture-backed exit activity by type ($B) in fintech 2010 — Q1’17 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2010 2011 2012 2013 2014 2015 2016 2017* IPO Buyout Strategic Acquisition 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2010 2011 2012 2013 2014 2015 2016 2017* IPO Buyout Strategic Acquisition 16 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Global venture investment in insurtech companies 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. After a steady march upward in both venture investment volume and value, to crest at 175 financings and $1.7 billion in value last year, 2017 is off to a slower start indicating more the effects of timing than any seismic shift in the insurtech space at large. “The definition of insurtech appears to have broadened rather than deepened in Q1’17. This suggests more startups are getting involved in the insurtech ecosystem because of the opportunities inherent in the sector. To be successful, these fintechs will need to develop their value propositions much further. It’s not enough to simply know change is needed. Solutions must also show why they are the best choice for change.” $188 $219 $332 $367 $1,009 $1,131 $1,726 $243 43 71 92 105 144 160 175 46 2010 2011 2012 2013 2014 2015 2016 2017* Capital invested ($M) # of deals closed Murray Raisbeck Partner, Insurance, KPMG in the UK 17 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Since 2016, regulatory technology (regtech) has become a hot subsector in nearly every major region worldwide. 2016 saw over $994 million in global VC investment across 91 deals. This was a steep increase from 2015’s $582 million and totals continue to rise. Q1’17 saw more than $219 million invested across 26 deals and signs point toward strong continued investment throughout the year. Responding to increased regulatory requirements Over the past 8 years, considerable increases in regulatory requirements for financial institutions and insurers and their associated costs appear to have forced the industry to respond. Though software has long been used to address regulatory requirements, increased regulatory complexity and reporting, as well as an ever-changing regulatory environment, requires more sophisticated and digitized products. Regtech startups are rushing to fill this demand. Regtech solutions are being used not only to transform labor-intensive manual compliance processes through automation, but also to contain risk and reduce costs through the effective processing of large volumes of data. Startup growth and investor interest is being seen in regtech solutions at all levels of complexity, from basic and enhanced process automation through to full cognitive technologies and AI. Regtech solutions driving business agility and growth Though cost containment and regulatory compliance remain significant industry drivers, organizations are also waking to the opportunities for business transformation provided by agile regtech solutions. Such implications become increasingly important as financial services organizations turn their attention back to strategic growth initiatives and new product development, as well as widening regtech’s target market to include insurers, challenger banks and other regulated industries. Regtech is particularly well-positioned to contribute to the productivity agenda by helping to structure and draw meaningful, actionable information from large volumes of data. Once integrated into business processes, advanced regtech solutions can provide the capability to deliver against a broader remit, such as delivering a better customer experience, more robust consumer protections, improved transaction monitoring and real-time fraud detection. Global relevance with local hotspots Regtech startups in the US and the UK are taking an early lead in the industry due to the regulatory pressures in local markets, as well as alignment with broader industry drivers. While much regtech startup and VC activity is centered in these areas, activity continues to increase in other locations around the globe. Regulators in areas like Singapore and Australia have been working to encourage regtechs through use of regulatory sandboxes and targeted funding opportunities for regtech startups. Regtech trends for 2017 and beyond Regtech is an area poised for significant growth in the coming years and VC interest and investment is expected to continue to increase. In the short term, more organizations will likely be looking to take advantage of low-hanging fruit around digital labor automation, increasing process efficiency and reducing cost for regulatory compliance and much immediate activity is expected to be centered on these areas. However, the more significant industry impacts and larger investments are expected to come from implementation of technologies such as blockchain, AI, big data and cognitive. Regtech startups and solutions that have the potential to impact the customer experience, such as predictive analytics, are particularly well-positioned for future growth as organizations look to use agile technology solutions to achieve greater competitive differentiation and drive the growth agenda. 18 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Global venture investment in regtech companies 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. $275 $326 $255 $251 $550 $583 $994 $219 48 52 62 85 106 104 91 26 2010 2011 2012 2013 2014 2015 2016 2017* Deal value ($M) # of deals closed “Increased complexity and the pace of regulatory change have led to the rise of regtech startups in the US and around the globe. Regtechs are collaborating with all types of financial institutions to enable them to accelerate data processing and reduce regulatory risk more cost effectively than ever before.” John Ivanoski Global Head of Regtech, KPMG in the US 19 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH 10 7 6 3 8 5 4 9 2 1 SoFi — $453M, San Francisco Lending Series G DirectCash Payments — $310.7M, Calgary Payments/transactions M&A Paytm E-Commerce — $200M, Mumbai Payments/transactions Early stage VC iZettle — $175.2M, Stockholm Payments/transactions Series D UniRush — $147M, Cincinnati Payments/transactions M&A 7 8 6 9 10 5 4 3 2 1 Funding Circle — $101.1M, London Lending Series F Zenbanx — $100M, Claymont Personal finance M&A TechProcess Payment Services — $85.8M, Mumbai Payments/transactions M&A ProducePay — $77M, Los Angeles Lending Early stage VC Yongqianbao — $68M, Beijing Lending Series C Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. 20 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH In Q1’17, fintech investment in the Americas hit across 133 deals 21 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH In Q1’17, total fintech investment in the Americas remained strong, with $1.8 billion invested across 133 deals. In line with previous trends, fintech deals activity in the Americas was driven by the US, although interest in fintech rose in other jurisdictions — particularly in Canada, which has been growing a number of fintech hubs. Partnering grows across Americas Across the Americas, interest in fintech continues to expand beyond direct VC investment and the development of incubators and accelerators. Both traditional financial institutions and fintech companies showed interest in partnering models. A partnering model is a win-win for both parties when done well, with traditional corporates gaining assistance with expanding and enhancing their products and services and fintechs gaining access to customers and data on a much broader scale than what most could manage independently. In some jurisdictions, partnering models also included universities and governments in order to foster high-value innovation. Corporate VC participation slides in Q1’17, investment remains strong Over the past year, corporate participation in fintech-specific VC deals has been significant in the Americas, with averages above 20% for the past three quarters. But in Q1’17, corporate VC participation dropped to15.2%. Despite decreased participation in fintech deal activity, total corporate VC investment reflected the third strongest quarter ever. Canada’s fintech sector continues to evolve and grow Fintech interest in Canada continued to increase in Q1’17, with the federal government reaffirming its commitment to innovation in the country’s 2017 budget. At the provincial level, Ontario introduced a regulatory sandbox for fintech — although the sandbox is under the purview of the Ontario Securities Commission, the organization responsible for regulating public companies, making it somewhat limited in scope. Within Canada, interest in blockchain seems to have remained stronger than ever and robo-advisory also gained traction. During Q1’17, Bank of Montreal introduced a robo-advisory service, making it the first big Canadian bank to do so. Looking ahead, investment in fintech is likely to grow in Canada, particularly around AI and machine learning. Interest in Brazil growing as optimism takes hold Brazil saw very little investment in fintech this quarter after a very strong Q4’16. However, while Brazil’s economy took a hit in recent years, there are signs that the country may have reached a turning point — including falling interest rates. Investors appear to be showing optimism, with some voicing plans to invest in the turnaround. Fintech interest in Brazil is unique compared to the rest of the Americas, with less focus on customers and more on increasing efficiencies in the value chain of financial services. Should Brazil’s economy continue to improve, fintech will likely gain more space on investors’ radars. Mexico-based fintech focused on unbanked and underbanked VC investment in Mexico was weak in Q1’17 as US investment into the country seems to have dried up amid uncertainties around the new US administration’s potential changes to trade policies. Over the quarter, fintech interest in Mexico continued to be driven by the needs of the unbanked and underbanked, with a focus on four key areas: payments, international transfers, mobile wallets and P2P lending. Some banks have recognized that fintechs can help move them forward more rapidly than internal innovation. These banks are working with fintechs to modernize services and operations in order to reduce costs — for example, introducing auto-banks with screen-based services supplemented by a connection to bank staff via telephones. With the cost of investment in Mexico quite low compared to the US, further fintech investments are likely over the next few quarters. Trends to watch in the Americas Investor interest is expected to continue to grow across the Americas — with an ongoing focus on the underbanked and unbanked in much of Mexico and Latin America and on activities like regtech, AI and machine learning in the more mature jurisdictions. 22 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech VC, PE and M&A activity in the Americas 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. After 3 very active years, overall investment within the fintech space is on a slower pace, returning more toward pre-2014 levels in both value and volume. Timing certainly played a factor in Q1’17’s more sedate pace, as well as the coincident booms in both M&A and venture deal making that have since somewhat subsided. $4.7 $8.7 $4.1 $9.3 $15.7 $37.7 $14.9 $1.8 214 309 395 521 679 752 615 133 2010 2011 2012 2013 2014 2015 2016 2017* Deal value ($B) # of closed deals “Q1’17 may have been quiet for fintech investment in Mexico, but interest is still evident. The country continues to be a great place to invest because the cost of investment compared to the US and elsewhere isn’t as steep. It is much lower risk, but the potential for reward is high — particularly for companies that can attract Mexico and Latin America’s large unbanked and underbanked populations.” Francisco Lopez Advisory Leader, Financial Services, KPMG in Mexico 23 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Venture investment in fintech companies in the Americas 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. Primarily due to SoFi’s outlier financing in the first quarter, VC invested was more than robust to start off 2017, although overall financing volume was also fairly healthy. Within the broader context of the venture industry being impacted by sliding angel/seed funding activity, the downturn in fintech is not much different, as late-stage deal volume actually rose quarter-over-quarter. 0 20 40 60 80 100 120 140 160 180 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2010 2011 2012 2013 2014 2015 2016 2017 Capital invested ($B) # of deals closed Angel/Seed Early VC Later VC “Q1’17 may have been quiet for fintech investment in Mexico, but interest is still evident. The country continues to be a great place to invest because the cost of investment compared to the US and elsewhere isn’t as steep. It is much lower risk, but the potential for reward is high — particularly for companies that can attract Mexico and Latin America’s large unbanked and underbanked populations.” Francisco Lopez Advisory Leader, Financial Services, KPMG in Mexico Oliver Cunningham Partne , Manageme t Consulting and Financial Services, i Brazil “Latin America and Brazil specific lly are unique when it comes t investing in fintech companies. Rath r than concentrating on ways to improve customer service, fintech strtups appear to be f cusing more on improving efficiencies across the value chain of fin cial services, from regulatory compliance to supply chain management.” 24 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech PE activity in the Americas 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. Datasets that consist of solely PE transactions have extrapolated deal values. After a blockbuster year for PE investors in fintech across the Americas — in terms of volume at least, if not the total value of transactions — a cyclical downturn is somewhat to be expected. Although a handful of hefty buyouts led to a robust $1.4 billion in total value in Q1 alone. $4.5 $4.2 $2.0 $8.4 $12.9 $6.0 $6.4 $1.4 29 33 34 60 64 41 69 13 2010 2011 2012 2013 2014 2015 2016 2017* Deal value ($B) # of closed deals 25 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech M&A activity in the Americas 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. In historical context, the slower start to 2017 in M&A value and volume is more a reflection of temporary reversion to the mean, more than anything else. It will be interesting to see how the year pans out in light of anticipated consolidation among the tech industry as a whole. $4.1 $7.5 $2.6 $7.4 $11.0 $31.2 $9.9 $0.6 60 88 101 109 127 168 143 27 2010 2011 2012 2013 2014 2015 2016 2017* Deal value ($B) # of closed deals 26 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Median fintech venture financing size ($M) by stage in the Americas 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. Late-stage financing sizes may be down in the Americas, but pre-money valuations have essentially stabilized around $20 million, although more time will be necessary to ensure sample sizes are robust enough by stage. That said, VCs that are writing checks nowadays are still willing to deploy fairly hefty sums. $0.5 $0.6 $0.5 $0.6 $0.8 $1.3 $1.0 $1.4 $2.5 $3.8 $3.0 $3.0 $3.7 $5.0 $6.8 $6.3 $7.1 $9.0 $8.4 $13.0 $16.0 $20.5 $20.3 $8.5 2010 2011 2012 2013 2014 2015 2016 2017* Angel/seed Early stage VC Later stage VC Median fintech venture pre-valuation ($M) in the Americas 2010 — Q1’17 $8.4 $17.9 $13.3 $15.2 $15.2 $19.7 $20.6 $20.0 2010 2011 2012 2013 2014 2015 2016 2017* 27 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech venture capital activity in the Americas with corporate participation 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. Corporate VC arms appear to have rationales for investing beyond those of traditional venture firms, especially when it comes to certain sectors, such as fintech. That said, on a regional basis, overall VC volume within fintech decreases and to an extent timing plays a significant role — however, 15% of total VC activity is still on the historically higher end. 0% 5% 10% 15% 20% 25% $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 $1.6 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2010 2011 2012 2013 2014 2015 2016 2017 Capital invested ($B) % of total deal count 28 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH “We’re seeing a big shift towards enablement here in Canada and across the Americas. Previously, many fintech companies thought they would take over the world. Now, it seems they are changing their mindset - recognizing that partnering with banks and insurance companies can be a much faster path towards monetization.” Fintech VC, PE and M&A activity in Canada 2013 - Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. Thanks to DirectCash Payments’ purchase by Cardtronics, Canada saw a spurt upwards of total transactional value, even as activity remained lower on a historical basis. 0 2 4 6 8 10 12 14 16 18 20 $0.0 $50.0 $100.0 $150.0 $200.0 $250.0 $300.0 $350.0 $400.0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2013 2014 2015 2016 2017 Deal value ($M) # of deals closed John Armstrong National Industry Leader, Financial Services, KPMG in Canada 29 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH In Q1’17, US fintech companies received investment of across 124 deals 30 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech investment in the US held steady in Q1’17 with $1.5 billion invested across 124 deals, despite uncertainty related to the change in administration. While there appeared to be a growing sense of positivity among investors, many likely held back from making deals in order to assess whether promised changes to trade and tax policies would be implemented. During the quarter, VC investment increased to $1.2 billion while deal activity also grew. The number of late-stage deals in particular increased, reaching the highest level since Q1’16. This uptick likely reflects an ongoing investor focus on proven fintech companies. Given the amount of dry powder in the market and indications that tax changes may be delayed until 2018, it is likely that interest and investment in fintech will pick up in Q2’17. Fintech companies maturing, attracting more investment First-time financings for fintechs in the US dropped in Q1’17 — a sign, perhaps, of a maturing fintech sector, particularly in payments and lending. Historically, many investors used a diversification strategy for investments, providing smaller funding amounts to a broader range of companies. In recent quarters, however, some fintechs have risen above the competition, maturing into high potential organizations or even clear winners. This has led many investors to invest more into these companies rather than broaden their investments further. At the same time, fintech investors seem to have also focused on follow-on investments as a means of de-risking, given uncertainties related to future US trade and tax policies. Large US fintechs focusing on expansion During Q1’17, larger US fintech players seemed to look toward expansion to fuel growth, raising funds to support geographic expansion, product or services expansion or both. SoFi was a prime example. The unicorn company’s $453 million Series G funding round was aimed at supporting expansion into Australia and Asia. During Q1’17, SoFi also acquired Zenbanx as a means to expand its product offering to include more traditional banking services. Corporate participation remains high as investors focus on long term Corporate participation in fintech investment remained high in Q1’17. With significant cash reserves, many corporates have taken an opportunistic approach to their fintech investments rather than focusing on short- term market drivers. Corporates appear to have also expanded the breadth of their fintech investments, working to develop partnerships, alliances, incubators, accelerators and digital labs, in addition to making VC investments or outright acquisitions. While this shift has been positive for the fintech evolution as a whole, it has also highlighted the need to find ways to measure the ROI of fintech initiatives to ensure they are aligned to long-term objectives. Robo-advisory moving beyond millennials focus Robo-advisory continued to gain momentum in Q1’17 amid growing recognition that it is beyond the millennial demographic. As pure play fintech companies like Wealthsimple and Modern Advisor began to offer robo- advisory and hybrid advisory services targeted to higher net worth individuals, traditional financial institutions also made significant investments in robo-advisory to both attract millennials and retain their higher net worth clients. For example, Wells Fargo announced in March that it would begin providing Intuitive Advisor, a hybrid robo-advisory service, starting in June 2017. Traditional banks appear to have also looked to extend their hybrid services model to other banking interactions. In this vein, Bank of America opened a number of teller-less branches during Q1’17, which leverage videoconferencing to provide more complex services. Integration of robo-advisors could be the next step in the robo-bank evolution. Trends to watch in the US Looking ahead to Q2’17, robo-advisory, AI and data analytics are expected to be hot investment areas, particularly for corporates looking to provide better customer experiences and more targeted services. Investment in insurtech is also likely to gain momentum, in addition to regtech, despite the US administration’s promise to decrease regulations. On the regulatory front, advances related to the proposed fintech banking charters will be a key area to watch as changes could have a major impact on the fintech market. 31 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. Considered in the context of the wider cooling in the venture industry as a whole, plus taking into account the fact that fintech remains a relatively youthful arena, the downturn in overall investment isn’t so much a sign of waning interest in fintech in general, but a temporary phenomenon. What is more promising is that venture investment in particular bolstered Q1'17 tallies, with investors still willing to back promising fintech enterprises. $4.7 $8.6 $3.9 $9.1 $15.2 $37.3 $14.2 $1.5 190 282 359 461 629 675 539 124 2010 2011 2012 2013 2014 2015 2016 2017* Deal value ($B) # of closed deals Total US fintech investment activity (VC, PE and M&A) in fintech companies 2010 — Q1’17 32 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Venture investment in fintech companies in the US 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. As certain fintech sub-verticals approach inflection points of either consolidation or emergence of clear front- runners, late-stage venture financing can often pick up, as investors flock to back proven businesses that need capital to cement expansive growth. 0 20 40 60 80 100 120 140 160 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2010 2011 2012 2013 2014 2015 2016 2017 Capital invested ($B) # of deals closed Angel/Seed Early VC Later VC “Because of their unique business models and distribution channels, we’re likely to see more well-established US fintechs pushing to expand in ways that few brick and mortar companies can. SoFi, for example, recently executed on plans for product expansion through the acquisition of Zenbanx and geographic expansion focused on Australia and Asia through a $450 million funding round.” Conor Moore National Co-Lead Partner, KPMG Venture Capital Practice, KPMG in the US 33 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech PE activity in the US 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. Datasets that consist of solely PE transactions have extrapolated deal values. It’s not just that technology-focused PE firms such as Silver Lake are making inroads in the late-stage venture scene, but that plenty of other PE firms have been cutting checks within the fintech arena specifically as of late, with a peak of 64 last year alone. The robust sum of $1.2 billion in total PE deal value in Q1'17 testifies to a continuing level of interest, even if deal volume is temporarily down. $4.4 $4.1 $1.9 $8.0 $12.0 $5.9 $6.2 $1.2 27 32 31 53 56 40 64 11 2010 2011 2012 2013 2014 2015 2016 2017* Deal value ($B) # of closed deals 34 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech M&A activity in the US 2010 — Q1’17 As noted previously, fintech M&A is off to a slow start, with Q1'17 seeing a level that is more reminiscent of pre- 2014 volume. That said, especially in a nascent arena, timing plays a significant role in overall M&A volume and consequently value trends. Further consolidation and acquisitions by incumbents to shore up their positions are only to be expected going forward. Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. “Financial institutions are not just investing in fintechs, they are actively looking to integrate the capabilities of the fintechs they invest in into their value chain and business model. I think we’ll continue to see this across many areas of fintech into the foreseeable future.“ Anthony Rjeily Principal, Financial Services Digital and Fintech Practice Lead, KPMG in the US $4.0 $7.5 $2.4 $7.3 $10.6 $31.0 $9.7 $0.2 51 78 83 93 113 147 125 24 2010 2011 2012 2013 2014 2015 2016 2017* Deal value ($B) # of closed deals 35 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Median fintech venture financing size ($M) in the US 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. $0.5 $0.8 $0.5 $0.6 $0.9 $1.3 $1.0 $1.4 $2.5 $3.8 $3.0 $3.2 $4.0 $5.0 $7.1 $6.3 $7.3 $9.0 $8.5 $12.8 $17.9 $21.0 $24.3 $10.0 2010 2011 2012 2013 2014 2015 2016 2017* Angel/seed Early stage VC Later stage VC Median fintech venture pre-valuation ($M) in the US 2010 — Q1’17 $8 $18 $13 $16 $16 $20 $22 $20 2010 2011 2012 2013 2014 2015 2016 2017* 36 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech venture capital activity in the US with corporate venture participation 2010 — Q1’17 0% 5% 10% 15% 20% 25% $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 $1.6 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 2010 2011 2012 2013 2014 2015 2016 2017 Capital invested ($B) % of total deal count “Corporate investment in the US is evolving. It seems to be maturing away from innovation tourism toward making targeted fintech investments that can be integrated into long-term corporate strategy.” Ann Armstrong US National Fintech Co-Leader, KPMG in the US The historical volatility in the rate at which corporate venture arms or corporation participation in fintech VC activity signifies the relatively limited number of players within the space more than anything else, plus the extent to which many strategic initiatives have focused on only a few fintech sub-vertical segments. Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. 37 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech venture investment (#) in the US by region Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. 9% 28% 2% 2% 8% 4% 8% 39% Great Lakes Mid-Atlantic Midwest Mountain New England Other Territory South Southeast West Coast 2.5% 18.7% 0.8% 0.9% 5.1% 1.3% 3.0% 67.6% Great Lakes Mid-Atlantic Midwest Mountain New England Other Territory South Southeast West Coast Fintech venture investment ($) in the US by region Q1’17 38 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH 10 7 6 3 8 5 4 9 2 1 SoFi — $453M, San Francisco Personal finance Series G UniRush — $147M, Cincinnati Personal finance M&A Zenbanx — $100M, Claymont Payments/transactions M&A ProducePay — $77M, Los Angeles Lending early-stage VC Kensho — $50M, Cambridge Institutional/B2B Series C2 7 8 6 9 10 5 4 3 2 1 CommonBond — $37.5M, New York Lending Series D Upstart Network — $32.5M, San Carlos Lending Series B Tala — $30M, Los Angeles Lending Series C TruMid — $27.6M, New York Investment banking/capital markets Series E InvestCloud — $25.2M, Beverly Hills Wealth/investment management Series C Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. 39 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH In Q1’17, investment in fintech companies in Europe hit across 89 deals 40 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Overall fintech investment in Europe grew in Q1’17, with $880 million invested across 89 deals. Of these totals, VC investment accounted for $610 million across 67 deals — the strongest quarter of European VC fintech investment in recent memory. Brexit-related uncertainties appeared to have little impact on Q1’17 investments, with the UK accounting for half of the top ten European investments. The country also continued to attract global VC investment — with London- based cross-border payments company CurrencyCloud raising $25 million from Google Ventures. This investment represents Google Venture’s first foray into the European VC fintech market. While Germany hosted three additional deals in the top ten, Stockholm-based iZettle’s $175 million raise was the largest this quarter, highlighting the growing depth of the Nordic fintech ecosystem. Smaller fintech hubs also continued to sprout in locations like Israel, Poland, the Czech Republic and Slovakia. Median deal sizes up as investors focus on later stage deals Median fintech deal sizes in Europe continued to increase, reaching $3.17 million during Q1’17. This reflected a growing shift toward investments in more mature fintech companies with proven business models — investments that can be seen as a safe harbor in uncertain times. Well established payments and lending companies accounted for many of the largest deals, including $100 million plus rounds to iZettle and Funding Circle. Rapidly approaching PSD2 fostering fintech activity The 2018 implementation of PSD2 is quickly approaching. In Q1’17, there was a strong push from both traditional corporates and fintechs to understand the ramifications of PSD2 and how to take advantage of related opportunities. It is expected that over the course of the next 3 quarters, investments related to PSD2 business models will continue to increase. German-based fintech ecosystem continues to evolve Germany saw a significant amount of investment in fintech during Q1’17, hosting four of the top ten regional fintech deals, including rounds to banking platform provider, Solarisbank, and deposits marketplace, Raisin. Q1’17 also saw an increased focus on business-to-business fintech opportunities, likely reflecting both the desire to take advantage of PSD2 and growing recognition that fintechs can enable business transformation. Challenger banks strong in UK Q1’17 saw a number of significant raises by challenger banks, including a $103 million round by Atom Bank and Monzo’s$27.5 million Series C round. These rounds continued an 18-month trend that has seen the UK give rise to more challenger banks than most other jurisdictions. The growth of challenger banks shows the value of government support for fintech, with both the UK government and the FCA focused on encouraging greater competition.1 The FCA appears to have also continued efforts to build bilateral partnerships with regulators internationally. In Q1’17, the FCA announced a partnership with the Ontario Securities Commission in Canada. With Article 50 now triggered and with the Brexit process underway, these types of initiatives may be critical to the success of the UK’s fintech ecosystem in a post-Brexit world. Ireland gaining prominence on the fintech radar Ireland continued to grow as a fintech centre in Q1’17, with numerous initiatives focused on showcasing the country as an alternative to London. Q1’17 saw a number of mature fintech companies in the region announce expansion plans, including client lifecycle management company Fenego. The country has also successfully attracted a number of fintechs to set up regional offices in Ireland, including Kabbage. Additional fintech investment is expected over the next few quarters as the country continues to market its ability to be a bridge to both the UK and Europe. Trends to watch for in Europe PSD2 will likely continue to drive fintech investment over the next few quarters in Europe as the implementation deadline approaches, with activity expected both on the API front and on the development of niche offerings that leverage open data. Investment in regtech and insurtech is also expected to grow. 1. https://www.ft.com/content/3068994c-bf71-11e5-9fdb-87b8d15baec2 41 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. Skewed massively by outliers, 2016 fintech transaction value was so immense that 2017 had a tough act to follow. Although volume remained healthy on a historical basis, total deal value in the first quarter of the year looks relatively paltry compared to the prior year. However, apart from temporal factors, as seen by the massive financings of companies such as iZettle and Funding Circle, as well as the pending purchase of ConCardis by Advent International and Bain Capital, there remains plenty of appetite for European fintech companies. Total Europe fintech investment activity (VC, PE and M&A) in fintech companies 2010 — Q1’17 $6.0 $4.0 $1.2 $3.4 $13.4 $12.5 $10.9 $0.9 109 138 167 246 334 411 380 89 2010 2011 2012 2013 2014 2015 2016 2017* Deal value ($B) # of closed deals 42 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Venture investment in fintech companies in Europe 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. “VC investment in Europe reached a new high in Q1, highlighting the strong opportunities present in the sector. Corporate participation is expected to help keep this trend going as many traditional companies are looking to take advantage of innovations.” Arik Speier Co-Leader, KPMG Enterprise Innovative Startups Network and Head of Technology, KPMG in Israel 0 10 20 30 40 50 60 70 80 90 100 $0.0 $0.1 $0.2 $0.3 $0.4 $0.5 $0.6 $0.7 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2010 2011 2012 2013 2014 2015 2016 2017 Capital invested ($B) # of deals closed Angel/Seed Early VC Later VC 43 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech PE activity in Europe 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. Datasets that consist of solely PE transactions have extrapolated deal values. PE activity within the European fintech scene remains on pace to match last year’s tally. Although it is more than likely that either timing or cyclicality due to the relatively lower supply of worthwhile targets, could lead to lowering buyout volume in the quarters to come. “Challenger banking is starting to come of age in the UK. Over the last 5 years, there was a flurry of new startups. Now, we’re starting to see several of them come into their own. Fintechs, like Monzo and Starling, are now seen as legitimate financial institutions with bank licenses and corporate capitalization.” Tom Roberts Director, Banking, KPMG in the UK $5.6 $2.9 $1.5 $4.7 $12.0 $11.2 $3.9 $1.0 23 27 19 32 41 56 44 11 2010 2011 2012 2013 2014 2015 2016 2017* Deal value ($B) # of closed deals 44 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech M&A activity in Europe 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. After a sudden surge in activity in 2015, M&A returned to a level that was well within historical bounds. Value declined considerably in a shift more attributable to a dearth of mega-deals than anything else. $5.8 $3.7 $0.9 $3.0 $12.2 $11.0 $9.5 $1.0 68 70 64 76 87 135 95 23 2010 2011 2012 2013 2014 2015 2016 2017* Deal value ($B) # of closed deals 45 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Median fintech venture financing size ($M) in Europe 2010 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook, *as of 3/31/2017) April 27, 2017. Median financing sizes hit new highs across all stages, signifying the level of pent-up demand for those fintech companies deemed safest by VC investors. “The deadline for implementing PSD2 is now fast approaching. As we move through 2017, expect to see new business models evolving to leverage open data and to capitalize on the opportunities presented." Anna Scally Partner, Head of Technology and Media and FinTech Leader, KPMG in Ireland $0.9 $0.5 $0.4 $0.3 $0.5 $0.6 $0.8 $1.3 $3.7 $1.4 $1.6 $2.7 $3.3 $5.0 $4.0 $5.4 $5.0 $5.5 $3.5 $4.3 $13.0 $14.9 $9.5 $15.9 2010 2011 2012 2013 2014 2015 2016 2017* Angel/seed Early stage VC Later stage VC 46 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech venture activity in Europe with corporate VC participation 2013 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. The upward spike in the proportion of corporate VC involvement, especially in the European scene, is relatively unsurprising. Given the potential of fintech within certain business operations for financial institutions and even certain corporations, there is plenty of reason for them to retain exposure. 0% 5% 10% 15% 20% 25% $0.0 $0.1 $0.1 $0.2 $0.2 $0.3 $0.3 $0.4 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2013 2014 2015 2016 2017 Capital invested ($B) % of total deal count 47 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech VC, PE and M&A activity in the United Kingdom 2013 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. Boasting as the world’s financial capital, the UK’s fintech scene enjoys a plethora of advantages. With deal activity chugging along at a steady level over the past four quarters, it is also clear that so far any Brexit- related uncertainty has not negatively impacted UK fintech transactional flow. 0 10 20 30 40 50 60 $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2010 2011 2012 2013 2014 2015 2016 2017 Deal value ($B) # of deals closed “We didn’t see much of an impact from Brexit in Q1’17 —which is good, but somewhat of a surprise, given fintech could be one of the most affected sectors. It will be interesting to see if deal activity changes now that Article 50 has been triggered and the negotiation process begins.” Patrick Imbach Head of KPMG Tech Growth, KPMG in the UK 48 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech VC, PE and M&A activity in Germany 2014 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. Bolstered by considerable VC activity in terms of deal volume, Germany saw its highest tally of completed deals in years. Consequently, value also experienced an uptick, although dwarfed by a few mega-deals in 2015. 0 5 10 15 20 25 $0.0 $100.0 $200.0 $300.0 $400.0 $500.0 $600.0 $700.0 $800.0 $900.0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2014 2015 2016 2017 Deal value ($M) # of deals closed “We have twenty-seven countries, so there is a lot of local innovation. This is an advantage for Europe as its diversity is driving new business models and opportunities. Even small countries like Poland, the Czech Republic and Slovakia are growing fintech companies. Success is happening everywhere. It’s not limited to London or Berlin.” Sven Korschinowski Partner, Financial Services, KPMG in Germany 49 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech venture investment in Israel 2012 — Q1’17 Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. The fintech downturn in Israel may be surprising at first, given a steady full year of amassing significant sums in 2016, however the quarter’s results are consistent with the pre-2016 era of fintech investment in the country. 0 1 2 3 4 5 6 7 8 $0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0 $70.0 $80.0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2012 2013 2014 2015 2016 2017 Capital invested ($M) # of deals closed 50 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH 10 7 6 3 8 5 4 9 2 1 iZettle — $175.2M, Stockholm Payments/transactions Series D Atom Bank — $103.6M, Durham Institutional/B2B PE growth Funding Circle — $101.1M, London Lending Series F BillPay — $64.7M, Berlin Payments/transactions M&A Raisin — $31.9M, Berlin Personal finance Series C 7 8 6 9 10 5 4 3 2 1 SolarisBank — $28M, Berlin Institutional/B2B Series A Monzo — $27.5M, London Personal finance Series C CurrencyCloud — $25.0M, London Payments/transactions Series D CompareEuropeGroup — $21.2M, London Personal finance Series A VATBox — $20M, Herzliya Institutional/B2B PE growth Source: Pulse of Fintech Q1'17, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook) April 27, 2017. 51 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH In Q1’17, investment in fintech companies in Asia hit across 33 deals 52 © 2017 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. #FINTECH Fintech investment in Asia declined significantly in Q1’17, primarily due to a lack of mega-deals which have been critical to peak quarters in the past. Despite the drop, interest in fintech across the region grew, with many countries attracting attention. Global fintech players also showed strong interest in Asia during Q1’17, with US- based SoFi planning to leverage its most recent funding round to drive expansion into Australia and Asia. Fintech activity increasing outside China China and India have attracted the majority of fintech funding historically, although Hon</p>