Overall global fintech funding across M&A, PE, and VC deals soared to a new high in H2’21, according to KPMG’s Pulse of Fintech, a bi-annual report on fintech investment trends. Dry powder cash reserves, increasing diversification in hubs and subsectors, and strong activity across the world contributed to the record start to 2021, with funding increasing from $87.1 billion in H2’20 to $98 billion in H1’21.
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 $21 billion in investment over nearly 600 deals globally, with many realising it’s quicker to do so by partnering with, investing in, or acquiring fintechs.
“Overall investment in fintech surged to a record high in the first half of 2021 as investors, particularly corporates and VC investors, made big bets on market leaders in numerous jurisdictions and across almost all subsectors,” said Ian Pollari, KPMG’s Global Fintech Co-Lead. “Large funding rounds, high valuations and successful exits underscore the thesis that digital engagement of customers that accelerated during the pandemic is here to stay.”
Investment surges to over $42.1 billion in the US and $51.4 billion across the Americas
Overall fintech investment in the US remained robust in H1’21, reaching $42.1 billion. VC investment in the US was particularly strong, surging past 2020’s peak high of $22 billion to reach over $25 billion in H1’21. Big deals included a $3.4 billion raise by Robinhood, a $600 million raise by Stripe, and $500 million raises by Better, ServiceTitan, and DailyPay.
The maturation of the fintech sector was evident in the robust exit activity in the US, including Affirm’s successful IPO, the direct listing of Coinbase, the SPAC merger of SoFi with Social Capital Hedosophia Holdings Corp. V, and the SPAC merger of insurtech Clover Health with Social Capital Hedosophia Holdings Corp. III.
Across the Americas more broadly, fintech investment was also very strong, reaching $51.4 billion in H1’21. VC investment accounted for $31 billion of this total—shattering the previous annual high of $24 billion set in 2020. Continued innovations in financial technology, combined with the dramatic increase in use of digital offerings has made fintech one of the most active sectors of investment, both from a VC perspective and from an M&A standpoint.
The global trend of increasing corporate participation in investment was particularly pronounced in the Americas during H1’21, with $12.8 billion of investment in the first half of the year, compared to $11.4 billion during all of 2020.
Europe sees record-breaking VC investment
Overall fintech investment in the EMEA region continued to surge, with over $39 billion invested in H1’21, compared to 2020’s annual total of $26 billion. The region also shattered its previous annual high for fintech-focused VC investment—attracting $15 billion in H1’21, compared to $9 billion during all of 2020.
The UK led the way with $24.5 billion of fintech investment, including a $14.8 billion M&A deal by Refinitiv —followed by the Nordic region ($4.8 billion), Germany ($2.5 billion), and France ($2 billion). The $4.8 billion in total fintech investment in the Nordic region was primarily driven by three deals in Sweden: the $2.6 billion acquisition of trading platform company Itiviti by Broadridge Financial Solutions, and two funding rounds totaling $1.9 billion by ‘buy now, pay later’ company Klarna.
In H1’21, the EMEA region saw a much broader array of fintech hubs attracting large investments than in the past—from the $800 million PE investment in Abu Dhabi-based Group 42 and the $600 million PE buyout of Ireland-based Fenergo to $100 million+ VC funding rounds in the Netherlands (i.e., Mollie, Bunq), France (e.g., Ledger, Market Pay, Shift Technology, Alan, and others), Austria (i.e., BitPanda), the Czech Republic (Twisto), and Saudi Arabia (Tamara).
Corporate VC-affiliated investment in the EMEA region soared to a record high of $5.2 billion in H1’21, compared to $5.1 billion in all of 2020.
Total investment in Asia-Pacific region rebounds in H1’21
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.
India led the way with $2 billion in total fintech investment, followed by China ($1.3 billion) and Australia ($900 million). The top ten deals in the Asia-Pacific region reflected incredible geographic diversity in H1’21, including South Korea (toss), Indonesia (Gojek), India (Pine Labs, CRED and Razorpay and KreditBee), the Philippines (Mynt), Australia (86400) and China (MediTrust). This diversity highlights the ongoing evolution and maturation of fintech hubs across the region.
Platform players with strong fintech offerings remained very hot in the Asia-Pacific region. Indonesia-based Gojek raised $300 million in H1’21, while also announcing a merger with payments and eCommerce platform Tokopedia.
Given the explosion of US-based SPACs in recent months, startups—including mature fintechs— in the Asia-Pacific region are expected to see more interest from US-based SPACs over the next six months. During H1’21, Singapore-based super-app company Grab announced the largest SPAC merger ever: a $40 billion deal with US-based Altimeter Growth Corp, which is expected to be finalised in H2’21.
Strong outlook ahead
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.
“Fintech is an incredibly hot area of investment right now—and that’s not expected to change anytime soon given the increasing number of fintech hubs attracting investments and growing deal sizes and valuations,” said Anton Ruddenklau, KPMG’s Global Fintech Co-Lead. “As we head into H2’21, we anticipate more consolidation will occur, particularly in mature fintech areas as fintechs look to become the dominant market player either regionally or globally.”
Speaking on the report, Dima Kats, CEO of Clear Junction said:
“The pandemic has caused widespread cross-border chaos, disrupting the global economy with lasting implications for corporates and consumers. Despite this, fintechs have proven resilient and adaptable, contributing to pandemic relief efforts, adjusting operations, and supporting vulnerable market segments, such as small and medium-sized businesses. In addition, they have seen year-over-year growth across most regions, with the global fintech market size is expected to grow to $124.3billion by the end of 2025.
“Beyond 2021, the collaboration and partnership between digital wallets and virtual banks will continue to help develop an ecosystem of smart financial services. Because of this, financial leaders should expect exponential growth in segments such as regulatory technology in fintech to keep up with the evolving compliance landscape.
“As we recover from the pandemic, there will be more trade finance and a greater reliance on the innovation of the fintech industry to help banks and financial institutions – increasing sustainability and meeting ESG standards to retain and attract investors and consumers.”