Overall global FinTech funding across M&A, PE, and VC deals soared to a new high in H1 2021, 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 2020 to $98 billion in H1 2021.
FinTech valuations remained very high in H1 2021 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.”
Payments keeps top spot for FinTech investment globally
After a strong 2020, global investment in payments kept up the momentum in H1 2021, led by the $2.4 billion SPAC merger by US-based SoFi, the $1.4 billion SPAC merger of UK-base Paysafe Group, two VC funding rounds totalling over $1.9 billion by Sweden-based Klarna and two funding rounds totalling over $1.1 billion by Brazil-based Nubank.
The growth of e-commerce and contactless payments during the pandemic, partly driven by more connected consumers, has created a perfect storm for FinTech investors.
Key H1 2021 highlights from the payments sector include:
Open banking fuelling payments investments in EMEA
Open banking regulations have helped accelerate fintech adoption in the EMEA region, improving third-party access to data and fostering an environment of collaboration — particularly in areas such as embedded finance.
Embedded finance diversifying payments space
The payments space is diversifying beyond person-to-person and bill payments, with solutions increasingly embedded into offerings, retail apps and ecosystem platforms. Disbursements is an emerging area being looked at both by insurers for claims processing and by governments as part of disaster recovery.
Payments-focused M&A strengthens
M&A activity continued to build during H1 2021, although there were no mega M&A deals to be seen. There continues to be a lot of opportunities for strategic acquisitions and for companies looking to expand market share, which bodes well for M&A heading into H2 2021.
Increasing involvement of non-financial companies
Many non-financial companies are broadening their reach into payments and financial services. During H2 2021, IKEA bought a stake in Ikano bank to provide consumer banking services, Walmart announced a partnership with Ribbit Capital to create a FinTech to offer digital financial products , and Walgreens announced a partnership with MetaBank to offer bank accounts in-store and online — including the use of a Banking-as-a-Service platform by InComm Payments and debit cards issued by Mastercard.
Strong outlook ahead
Looking forward to H2 2021, 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 2021, we anticipate more consolidation will occur, particularly in mature FinTech areas as FinTechs look to become the dominant market player either regionally or globally.”
H1 2021—Key Highlights
- Global FinTech investment reached $98 billion across 2,456 deals in H1’21 – far outpacing last year’s annual total of $121.5 billion across 3,520 deals.
- M&A deals continued at a very healthy pace, accounting for $40.7 billion across 353 deals in H1 2021, 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 2021.
- Corporate participation in VC investment in FinTech was incredibly strong in H1 2021, with $20.8 billion of investment globally. Both the Americas ($13 billion) and EMEA ($5 billion) saw record levels of CVC-affiliated investment.
- Global investment in cybersecurity reached a new annual record at mid-year—rising from $2.2 billion in 2020 to over $3.7 billion in H1 2021.
- Cross-border M&A deal value rose dramatically, from $10.3 billion during all of 2020 to $27.7 billion in H1 2021 alone.
- PE firms embraced the FinTech space in H1 2021, contributing $5 billion in investment to FinTech— surpassing the previous annual high of $4.7 billion seen in 2018.
- Total FinTech investment in the Americas was very robust with over $51 billion in investment across 1,188 deals.
- The EMEA region saw $39.1 billion in FinTech investment in H1 2021, including a record $15.1 billion in VC funding.
- 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.
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