According to the Pulse of Fintech H2’20, a bi-annual report on global fintech investment trends published by KPMG, overall global fintech funding across M&A, PE and VC was US$105 billion across 2,861 deals in 2020: the third highest level of investment in fintech ever.
With the exception of M&A – which saw deal value drop over 50 percent (from $130 billion in 2019 to $61 billion in 2020) – the overall fintech market proved remarkably resilient in 2020 despite a broad array of uncertainties, from the global pandemic to the US presidential election. Following a short COVID-19 driven pause in H1’20, fintech investment bounced back strongly in H2’20, more than doubling from H1’20 ($33.4 billion) to H2’20 ($71.9 billion). The US was the dominant benefactor for fintech investment in 2020, while the payments space continued to dominate investment from a sector perspective.
Strong VC investment throughout the year helped buoy overall fintech investment. Global fintech-focused VC investment reached $42 billion in 2020, including $20.5 billion in H2. Both the Americas ($23 billion) and EMEA ($9.2 billion) regions saw record highs of annual fintech-focused VC investment. US-based wealthtech Robinhood raised the most VC funding in H2’20: $1.3 billion across two rounds ($600 million and $668 million). Several digital banks also raised funding rounds greater than $500 million, including Sweden-based digital bank Klarna ($650 million), UK-based Revolut ($580 million), and US-based Chime ($533 million).
“A number of sectors floundered given the challenges of doing business in a pandemic environment,” said Anton Ruddenklau, Global Fintech Co-Leader, KPMG. “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.”
2020 key highlights
- Global fintech investment was $105 billion in 2020 – the third highest year on record despite a significant drop compared to $165 billion in 2019.
- While M&A deal value dropped in the first half of 2020 ($10.9 billion), it rebounded to over $50 billion in H2’20, led by the $22 billion acquisition of TD Ameritrade by Charles Schwab and the $7.1 billion acquisition of Credit Karma by Intuit.
- VC investment in fintech globally rose year-over-year – from $40 billion over 2,834 deals to over $42 billion investment across 2,375 deals. Median VC deal sizes grew significantly for all deal stages between 2019 and 2020, including angel and seed ($1.3 million to $1.7 million), Early Stage ($5 million to $5.8 million), and Late Stage ($10.5 million to $15 million).
- Total fintech investment in the Americas was robust with over $79 billion in investment, including $58 billion in H2’20. The US accounted for $76 billion of this total, including $55 billion in H2’20. EMEA saw $14.4 billion in fintech investment in 2020, including a record $9.25 billion in VC funding. Meanwhile, fintech investment in the Asia-Pacific region dropped to the lowest level since 2014: $11.6 billion.
- Corporate-participated venture investment in fintech was incredibly strong in 2020 at $21 billion, with both the Americas ($9.7 billion) and EMEA ($4.8 billion) seeing record annual levels of CVC investment.
- Global investment in cybersecurity quadrupled – from $500 million in 2019 to over $2 billion in 2020.
- US accounts for over 70 percent of global fintech funding, with $76 billion in investment
Despite uncertainty, the mature US market showed strength in 2020. The US alone accounted for $76 billion in fintech investment, including over $54.5 billion in M&A deal value, $20.5 billion in VC investment, and $1 billion in PE investment. The US drove the H2’20 rebound in global M&A, accounting for 90 percent of the M&A deals in H2’20, including TD Ameritrade ($22 billion), Credit Karma ($7.1 billion), Vertafore ($5.3 billion), Iberia Bank ($2.5 billion), and Avaloq ($2.2 billion).
In the Americas more broadly, fintech investment was mixed. After three soft quarters, Q4’20 saw fintech investment in Canada rebound to $438 million, including the $261 million acquisition of Paybright by Affirm and the $86 million raise by Wealthsimple. Brazil, meanwhile, set a record $506 million in fintech investment in Q4’20 – led by a $255 million raise by Creditas – which helped drive it to an annual record of $1.4 billion in 2020.
Europe sees record-breaking VC investment even as M&A dries up
Overall fintech investment in the EMEA region dropped from $61.5 billion in 2019 to $14.4 billion in 2020, driven by the lack of mega M&A deals such as the $42.5 billion acquisition of Worldpay in 2019. With the exception of M&A activity, the European fintech market was very robust. A record quarter of VC investment in Q3’20 ($3.1 billion) helped drive annual investment in EMEA to a record high of $9.25 billion.
Payments firms and challenger banks drove the largest deals in Europe, including $500 million+ raises by three companies: Sweden-based Klarna ($650 million), Poland-based Polskie ePlatnosci ($587 million) and UK-based Revolut ($580 million).
Total investment in Asia sinks to six-year low of $11.6 billion
Overall fintech investment in the Asia-Pacific region dropped from $16.8 billion in 2019 to $11.6 billion in 2020 – a six-year low. After the $3 billion raise by Gojek in Q1’20, the increasing uncertainties created by the pandemic drove a large amount of investment away from emerging markets like Southeast Asia, particularly in the second half of the year.
The payments space showed the most regional resilience. In H2’20, Australia-based eNett was acquired by US-based WEX for $577 million, Australia-based Judo Bank raised $209 million, South Korea-based Toss raised $177 million, and India-based Razorpay raised $100 million.
China saw US$1.6 billion of investment in 2020, a decline that reflects the maturity of China’s payments market which is dominated by a small number of tech mega giants as well as the ongoing regulatory changes occurring in the country. One area of growth for fintech investment in China is insurtech.
In H2’20, Shuidi – a crowdfunding platform focused on medical expenses – raised two rounds totalling US$380 million. Digitalization is the current buzzword in China’s insurtech industry; digital transformation of the insurance industry is being driven by a combination of the government, insurance companies and technology companies.
As a result, insurance service providers are likely to see structural reforms continue, with more emphasis being placed on risk prevention through innovative methods that would lower risks.
A bright future for fintech projected, with exits on the horizon
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 strong as incumbent businesses continue to work to accelerate their digital transformation efforts.
In addition to payments and platform models, B2B solutions will likely be a very hot area of investment globally in 2021, including such areas as embedded finance and ‘buy now, pay later’ solutions. Blockchain is also expected to gain traction as blockchain-based solutions and digital asset offerings become more mainstream.
“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. 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,” said Ian Pollari, Global Fintech Co-Leader, KPMG.
“We’re also going to start seeing a rebound in M&A activity across the board as smaller fintechs consolidate, incumbents look to acquire capabilities to speed up their digital transformation efforts and larger fintechs embrace M&A as a mechanism for growth.”
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