Global fintech investments more than doubled between the first and second halves of 2020 and are expected to remain robust well into 2021. Payments and e-commerce platforms were particularly hot areas of investment, a KPMG report reveals.
According to KPMG’s latest Pulse of Fintech report, fintech investments rose from $33.4billion in the first half of 2020 to $71.9billion in the second six months of the year. In total, there were 2,861 fintech funding deals in 2020, worth a total of $105billion.
Despite the uncertainties of the global pandemic and the US presidential election, strong venture capitalist investment throughout the year helped boost overall fintech investment. Global fintech-focused VC investment reached $42billion in 2020, including $20.5billion in H2.
Anton Ruddenklau, global fintech co-leader at KPMG, said: “A number of sectors floundered given the challenges of doing business in a pandemic environment . Fintech, for the most part, was not one of them. Covid-19 has been a catalyst for many fintech business models – a real proving ground given the accelerated demand for digital offerings coming from consumers and businesses alike. Payments and e-commerce platforms were particularly hot areas of investment, in addition to cybersecurity, given the increasing use of digital platforms.”
VC investment in fintech globally rose year-over-year – from $40 billion over 2,834 deals to over $42billion investment across 2,375 deals. Both the Americas ($23billion) and EMEA ($9.2billion) regions saw record highs of annual fintech-focused VC investment. However, fintech investment in the Asia-Pacific region dropped to the lowest level since 2014 at $11.6billion.
US-based wealthtech Robinhood raised the most VC funding in H2’20: $1.3billion across two rounds ($600million and $668million). A number of digital brands raised funding rounds above $500million, including Sweden-based digital bank Klarna ($650million), UK-based Revolut ($580million), and US-based Chime ($533million).
Although M&A deal value dropped in the first half of 2020 ($10.9billion), it rebounded to more than $50billion in H2’20, led by the $22billion acquisition of TD Ameritrade by Charles Schwab and the $7.1billion acquisition of Credit Karma by Intuit.
Corporate-participated venture investment in fintech flourished in 2020 at $21billion, with both the Americas ($9.7billion) and EMEA ($4.8billion) seeing record annual levels of CVC investment. Meanwhile, global investment in cybersecurity quadrupled – from $500million in 2019 to more than $2billion in 2020.
Payments firms and challenger banks drove the largest deals in Europe, including $500million+ raises by three companies: Klarna, Polskie ePlatnosci and Revolut.
In Asia-Pacific, where overall fintech investment dropped, the payments space showed the most regional resilience. In H2’20, Australia-based eNett was acquired by US-based WEX for $577million, Australia-based Judo Bank raised $209million, South Korea-based Toss raised $177million, and India-based Razorpay raised $100million.
According to KPMG’s latest report, given the increase in demand for digital payments, contactless payments and e-commerce platforms, fintech investment is expected to remain robust well into 2021. Corporate investment is expected to be particularly buoyant as incumbent businesses continue to work to accelerate their digital transformation efforts.
Blockchain is also expected to gain traction as blockchain-based solutions and digital asset offerings become more mainstream. The study also suggests resurgence in M&A activity across the board as smaller fintechs consolidate, incumbents look to acquire capabilities to crank up their digital transformation efforts and larger fintechs plump for M&A as a mechanism for growth.
“Given the strong valuations that tech companies are getting in the public markets, exit activity is going to increase significantly in 2021, particularly in terms of IPOs,” said Ian Pollari, global fintech co-leader at KPMG. “Already in H1’21, we’ve seen a number of unicorn fintechs looking to go public – whether through traditional IPOs or through SPACs – and we’re likely to see more.”