KPMG‘s Pulse of Fintech, the bi-annual report on fintech investment trends, was released earlier this month where it was found that funding had increased from $87.1billion in H2’20 to $98billion in H1’21 due to factors like dry powder cash reserves, increasing diversification in hubs and subsectors, and strong activity across the world. M&A, PE, and VC deals soared to a new high globally and the UAE was no exception.
Fintech valuations remained very high in H1’21 as investors continued to see the space as attractive and well-performing – a likely driver in the explosion of unicorn births with 163 created in the first half of the year.
Under pressure to increase the velocity of their digital transformation and to enhance their digital capabilities, corporates were particularly active in venture deals, participating in close to $21billion in investment over nearly 600 deals globally, with many realising it’s quicker to do so by partnering with, investing in, or acquiring fintechs.
Looking forward to H2’21, total fintech investment is expected to remain very robust in most regions of the world. While the payments space is expected to remain a dominant driver of fintech investment, revenue-based financing solutions, banking-as-a-service models, and B2B services are expected to attract increasing levels of investment. Given the rise in digital transactions, and the subsequent increase in cyberattacks and ransomware, cybersecurity solutions will likely also be high on the radar of investors.
UAE outlook
The digital bank space got some attention in H1’21 with the announcement of the upcoming launch of Zand — the UAE’s first independent digital bank. International interest in the UAE continued to grow, with both Ireland-based regtech company DX Compliance39 and US based payments firm Stripe40 launching operations in the UAE during H1’21.
During H2’21, the Financial Services Regulatory Authority of the ADGM introduced a framework to regulate open banking platforms to enhance consumer data protection. Looking forward, investment in payments and contactless technologies is expected to remain strong in the UAE. Investor interest in Islamic finance focused startups, such as Shariah compliant fintechs, is expected to grow over the next few quarters.
Goncalo Traquina, Partner, KPMG Lower Gulf, said, “Accelerators and events are an important part of building up the fintech ecosystem in the UAE. H1’21 saw some interesting developments in this area. The Ministry of Economy and the Securities and Commodities Authority launched a Fintech Megathon to help reimagine financial services in the UAE. UAE technology ecosystem Hub 71 and US-based Modus Capital also launched Ventures Lab — a program aimed at helping early-stage founders build viable products.”
H1’21—Highlights
- Global fintech investment reached $98billion across 2,456 deals in H1’21 – far outpacing last year’s annual total of $121.5billion across 3,520 deals.
- M&A deals continued at a very healthy pace, accounting for $40.7billion across 353 deals in H1’21, compared to $74billion across 502 deals during all of 2020.
- Late-stage venture valuations more than doubled year-over-year, with global median pre-money valuations for late stage deals rising from $135million in 2020 to $325million at the end of H1’21.
- Corporate participation in VC investment in fintech was incredibly strong in H1’21, with $20.8billion of investment globally. EMEA ($5billion) saw record levels of CVC-affiliated investment.
- Global investment in cybersecurity reached a new annual record at mid-year—rising from $2.2billion in 2020 to over $3.7billion in H1’21.
- Cross-border M&A deal value rose dramatically, from $10.3billion during all of 2020 to $27.7billion in H1’21 alone.
- PE firms embraced the fintech space in H1’21, contributing $5billion in investment to fintech— surpassing the previous annual high of $4.7billion seen in 2018.
- The EMEA region saw $39.1billion in fintech investment in H1’21, including a record $15.1billion in VC funding. In H1’20, VC investment in the region was only $4billion.
Findings on the rest of the world
In Asia: Total fintech investment (M&A, VC and PE) and deals activity in the Asia-Pacific region saw a solid rebound in the first half of 2021. After falling to $4.7 billion across 357 deals in H2’20, H1’21 saw $7.5 billion in investment across 467 deals – in large part driven by venture capital activity.
In North America: Overall fintech investment in the US remained robust in H1’21, reaching $42.1billion. VC investment in the US was particularly strong, surging past 2020’s peak high of $22billion to reach over $25billion in H1’21. Big deals included a $3.4billion raise by Robinhood, a $600million raise by Stripe, and $500million raises by Better, ServiceTitan, and DailyPay. In only half of the 2021 financial year, the America’s has seen larger funding then the whole of the 2020 year, as in H1’21, there was $12.8billion of investment compared to the $11.4billion during all of 2020.
Looking forward to H2’21, total fintech investment is expected to remain very robust in most regions of the world. While the payments space is expected to remain a dominant driver of fintech investment, revenue-based financing solutions, banking-as-a-service models, and B2B services are expected to attract increasing levels of investment. Given the rise in digital transactions, and the subsequent increase in cyberattacks and ransomware, cybersecurity solutions will likely also be high on the radar of investors.
