Equity funding in capital markets fintech was “down 52% in 2017,” a White Paper by the Boston Consulting Group (BCG) concluded March 16.

In 2017 fintech ventures secured $570 mln funding in the capital markets ecosystem, compared with $1.18 bln and $1.19 bln in 2015 and 2016 respectively. BCG’s dataset covered 903 companies.

BCG isolated a pullback of venture capital (VC) firms as a major factor. VC investment in fintech was down to $380 mln, less than half of its $1+ bln total in 2016. These figures are the lowest since 2012.

BCG attributes this underspending on innovation to “legacy IT constraints” and the preponderance of “a product/relationship model over a service-focused model with automation at its core.”

The paper indicates a shift in strategies and distribution over the 2017-2018 period, with divergent data for incumbents and lower-tier players respectively. Top-tier investment banks cut fintech spending to $30 mln in 2017, compared with $46 mln in 2016 and $87 mln in 2015. However, smaller investment banks showed a threefold increase, from $20 mln in 2016 to almost $60 mln in 2017.

Lower-tier investors continued to invest in “post-trade fintechs, including block-chain [sic] focused R3 CEV ($107 mln) and Digital Asset Holdings ($40 mln).”

Both BCG and CB Insights’s recent analysis of the US fintech sector highlight that investors have been turning away from early-stage (Seed and Series A) deals to favor mature companies and later-stage investments. This was notably the case with Coinbase’s recent Series B and C venture deal with Andreessen Horowitz.

A briefing tomorrow for CB Insights will likewise look into how trends in banks’ fintech investing strategies are shifting away from seed-stage bets to consolidating their own acquisitions and launching their own products in order to muscle out the competition.

Another key shift is geographic diversification. US-fintech early-deal activity has dropped 23% a year since 2013, whereas fintech early-stage investment in Europe has shown a strong 39% growth year-by-year. South America hit a five-year high in fintech deals in 2017.

Cryptocurrencies’ volatility, media furor, and evolving regulation from diverse governments and institutional behemoths continue to impact investment in the nascent crypto sphere.

Many VC firms continue to advocate the potential of fintech innovation, including Blockchain solutions, which leverage disintermediation and can simplify and secure infrastructure in the financial sector.

A recent report by Crunchbase showed that 2017 was a banner year for investment in Blockchain and related tech initiatives, and 2018 already looks set to outstrip this.

VC investments for the first two months of 2018 include a $75 mln Series B for crypto hardware wallet creator Ledger, an $18 mln seed round for QUASA, a Russian Blockchain platform for the cargo industry, and $10 mln for SF-based Harbor Platform.

We can add to this $140 mln VC raised from investors such as Goldman Sachs, Baidu, and CICC for Circle’s recent acquisition of the Poloniex crypto exchange, as well as VC Firm Digital Currency Group’s investment in crypto-friendly Silvergate Bank.