While overall global fintech funding fell during the first half of 2020, with US$25.6 billion of investment globally across 1,221 deals, corporate deals are driving continued strength in VC activity, according to the Pulse of Fintech H1’20, a bi-annual report on global fintech investment trends from KPMG International.
A sharp drop in M&A investment drove most of the decline. During H1’20, M&A accounted for just US$4 billion* of fintech investment (compared to $85.7 billion in H2’19), including the $1.3 billion reverse merger of Open Lending. The stalled M&A reflects both a general slowdown in deal activity and investors pressing pause on major deals in order to re-consider valuations and risk appetite given COVID-19.
Despite global uncertainty, VC investment was strong in all regions of the world – and is on track to surpass previous annual record highs should the trend continue. In H1’20, VC investment in fintech accounted for $20 billion, including $9.3 billion in the Americas, $6.7 billion in Asia, and $4 billion in EMEA. Indonesia-based Gojek raised $3 billion in the largest VC deal of the quarter – and the largest fintech deal overall. Gojek competitor Grab accounted for the second largest fintech VC deal ($886 million), followed by Stripe ($850 million). Late-stage deals accounted for a significant proportion of VC investment as mature fintechs continued to attract large funding rounds.
Given the long lead times for deal-making, many H1’20 deals were initiated in late 2019. COVID-19 saw new deal activity slow dramatically, except in high-priority sectors like payments. Despite the pandemic, investor interest in platform businesses remained incredibly strong in H1’20, particularly in less mature fintech markets. Platform business continued to see significant investment from investors and large techs.
“The Gojek deal is a prime example of how the lines of fintech are blurring. The Indonesia-based platform provider, which also has a digital payment offering, attracted funding from tech giants Facebook, PayPal, Google and Tencent,” said Ian Pollari, Global Fintech Co-leader, KPMG International.
“The intermingling of big tech platform providers and fintech is only expected to grow as big techs work globally to extend their market reach and value propositions – particularly in markets like Southeast Asia.”
2020 Key Highlights
- Global fintech investment is well behind 2019’s total investment of $150.4 billion. At mid-year, total fintech investment globally is $25.6 billion.
- The Americas accounted for the largest share of total fintech investment at mid-year, with $12.9 billion investment. ASPAC saw $8.1 billion in total fintech investment during H1’20, while EMEA saw $4.6 billion in fintech investment.
- The Americas and EMEA are currently on track to see a new record annual high of VC investment in fintech. At the end of H1’20, the Americas had attracted $9.3 billion in VC investment, Asia had attracted $6.7 billion, and EMEA had attracted $4 billion.
- Corporate VC participating investment remained very strong, accounting for $12.2 billion in fintech investment globally. The US saw a record in VC deal value with corporate participation well over $2.4 billion in Q1 2020; the following quarter nearly matched that same amount.
- M&A activity dropped in all regions of the world – a sharp decline due to the mega M&A activity seen during 2018 and 2019. During H1’20, global M&A deals accounted for $4 billion globally, compared to $85.7 billion in H2’19.
- Global investment in cybersecurity flew past 2019’s record high of $592.3 million, reaching $870.8 million.
US sees lion’s share of fintech investment in Americas
The Americas saw a steep decline in fintech funding, with $12.9 billion of investment in H1’20 compared to $43.3 billion in H2’20. Plummeting M&A investment was responsible for the decline as VC investment in the region was on record pace – with $9.3 billion raised by the end of H1’20. The US accounted for the vast majority of both total fintech investment in the Americas ($11.9 billion) and VC investment ($8.6 billion) – with large deals including the $1.3 billion reverse merger of Open Lending, an $850 million raise by Stripe, the $700 million acquisition of RDC, and a $700 million raise by Chime.
The payments space was the hottest sector for VC investment in the US. In addition to Stripe and Chime, B2B payments company AvidXchange raised $388 million. Late stage companies in other fintech sub-verticals also raised large megarounds, including wealthtech Robinhood ($430 million) which raised an additional $200 million in a separate round in mid-August 2020, cryptocurrency firm Bakkt ($300 million), and insurtech Duck Creek Technologies ($230 million).
Challenger banks raise big VC rounds in Europe
Total fintech investment in EMEA declined significantly, given the lack of mega M&A deals. During H1’20, the region saw $4.6 billion in fintech investment. VC investment in fintech remained strong in H1’20, accounting for US$4 billion in investment.
During H1’20, challenger banks attracted five of the 10 largest deals in EMEA, including Germany-based N26 ($570 million), UK-based Revolut ($500 million), Sweden-based Klarna ($200 million), UK-based Starling Bank ($123 million), and France-based Qonto (US$116 million).
Southeast Asia becomes hotspot for fintech activity
ASPAC saw $8.1 billion in total fintech investment during H1’20, led by the US$3 billion funding round by Indonesia-based Gojek, an $886 million raise by Gojek’s main competitor – Singapore-based Grab, and a $398 million raise by India-based Navi Technologies. Fintech investment in ASPAC was quite diverse from a regional perspective this quarter. In addition to Indonesia, Singapore and India, Japan (Paidy: $251 million), South Korean (KSNET: $237 million), and Australia (Airwallex: $160 million, Judo Bank: $147 million) also saw large fintech deals. Fintech investment in China remained suppressed, falling to a multi-quarter low in Q2’20.
Government regulatory efforts were a very strong trend in ASPAC. During H2’20, Australia re-opened submissions to its Select Committee on Financial Technology and Regulatory Technology in order to understand how COVID-19 has affected the fintech sector, while Singapore introduced a licensing program for digital asset exchanges and platforms and Hong Kong (SAR) introduced an ‘opt-in’ licensing program for digital assets exchanges.
Corporate fintech investment robust in face of COVID-19
Corporate investment in fintech remained very strong in H1’20, accounting for $12.2 billion in investment across participating deals globally. The US was particularly notable as it saw a record high of over $2.4 billion in corporate investment in Q1’20 – a number almost matched in Q2’20. Corporate investment is expected to remain very strong heading into H2’20, in part due to the strategic nature of investments driven by corporates making investments in digital channels and products in order to serve their customers better in the COVID-19 era.
Accelerated digital trends will shape fintech’s future
COVID-19 will remain key driver of change for fintech investment heading into H2’20 given the strong acceleration of digital trends – such as the use of contactless payments and the demand for and use of digital service models. The ongoing acceleration of digital trends will drive fintech investment not only in direct fintech solutions, but also in related enabling technologies – such as cybersecurity, fraud prevention and digital identity management. Platform businesses will also continue to be a hot ticket for investors, particularly in less mature jurisdictions.
“Over the remainder of 2020, we will likely see investors continuing to focus on late stage deals and safe bets given the current uncertainty. This will likely create challenges for less mature fintechs who could find themselves running out of cash and struggling to raise additional funding,” said Anton Ruddenklau, Global Fintech Co-Leader, KPMG International.
“In H2’20, there will likely be an increasing number of opportunistic investments by corporates and PE firms look for good deals.”
*All figures referenced are in USD.
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