Record-breaking VC investment in fintech in first half of 2021
Overall global fintech funding across M&A, PE, and VC deals soared to a new high, 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 US$87 billion in H2’20 to US$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. This likely drove the explosion of unicorn births in the first half of 2021.
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 its quicker to do so by partnering with, investing in, or acquiring fintechs.
Some key global H1’21 Highlights:
Global fintech investment reached US$98 billion across 2,456 deals in H1’21 – far outpacing last year’s annual total of $121.5 billion across 3,520 deals.
Total fintech investment in the Americas was very robust with over US$51 billion in investment across 1,188 deals.
The EMEA region saw US$39.1 billion in fintech investment in H1’21
Fintech investment in the Asia-Pacific region continued at a more moderate pace, reaching $7.5 billion across 467 deals, compared to $13.4 billion across 714 deals during all of 2020.
M&A deals continued at a very healthy pace, accounting for $40.7 billion across 353 deals in H1’21, compared to $74 billion 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 $135 million in 2020 to $325 million at the end of H1’21.
PE firms embraced the fintech space in H1’21, contributing $5 billion in investment to fintech— surpassing the previous annual high of $4.7 billion seen in 2018.
Highlights from India:
India almost matched its total fintech investment in 2020, with $2 billion in investment in H1’21.
Digital banking was a big play in India, but with a unique model compared to other jurisdictions in the regions – with digital banks acting primarily as SaaS providers and regulatory responsibility remaining with bank partners.
Early fintech leaders in India have continued to expand their business models into adjacencies in order to bring their customers more value, such as payments players acquiring insurtechs.
Insurtech is a growing area of interest for investors in India; in H1’21, several insurtechs raised mid-sized VC or PE funding rounds.
Commenting on the India findings, Sanjay Doshi, Partner and Head – Financial Services Advisory, KPMG in India said, “ Exits in India are going to increase, both in terms of IPOs and in terms of acquisitions. On the M&A front, fintechs could be targeted by banks, larger fintechs or even a fintech services conglomerate. Over the next 12 months, we expect leading fintech unicorns trying to tap into the strong capital market by looking at an IPO. Banks are also keen to partner with Fintechs especially Neo Banks and Wealthtech platforms”.
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.