Silicon Valley's Romance With FinTech Startups Is Dwindling

Don't worry, there's already a new suitor on the horizon.

A "paradigm shift" is taking place in financial technology.

Venture capital firms, which poured $117 billion into fintech startups from 2012 to 2016, have been pulling back on their investments. Meanwhile, established financial firms are positioned to step up their spending.

In a big note out to clients on May 18 titled "Fintech: A Gauntlet to Riches," a group of equity analysts at Morgan Stanley said this shift will lead to an environment where legacy firms, or incumbents, "take the reigns" of financial innovation.

"Financials and payments incumbents are likely to be emboldened to step up R&D and take the investment lead, and this combination of VC/incumbent behavior represents a paradigm shift that should benefit incumbents' ," Morgan Stanley said.

The role of VCs will continue to diminish

Financial technology companies experienced a surge in funding from 2012 to 2015, during which time venture capital firms poured $92 billion into the space. Now it looks like those VC firms are experiencing a bit of a hangover.

In 2016, global venture capital investment in fintech companies dipped to $25 billion, from $47 billion in 2015. Read more

Frank Chapparo - Inc. - 22 May 2017