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.

2020 Key Global Highlights

·       M&A deal value dropped in the first half of 2020 ($10.9 billion) but it rebounded to over $50 billion in H2’20

·       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)

·       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

Key Highlights from India

Despite pandemic challenges, India sees second-best year for fintech funding.

·       India attracted $2.7 billion in fintech investment in 2020, the second highest amount ever next to 2019’s peak of $3.5 billion

·       Payments remained the hottest area of investment, followed by insurtech and wealthtech

·       Fintech investors adjusted their strategies in H2’20, moving away from both early stage companies and lending-based businesses and towards later stage companies; investors also focused more on profitability

·       Competition in the insurance space started to heat up as incumbent insurers enhanced their digital focus due to COVID-19 and niche payments players worked to expand into insurance

·       To boost digital transactions and the fintech industry, the government has proposed significant support in their recent budget announcements, which include a scheme to develop, promote and accelerate digital payments, following a sharp growth in online and contactless payments during the COVID-19 led lockdown months.

Sharing his views on the insights from India, Sanjay Doshi, Partner and Head of Financial Services Advisory, KPMG in India said, “ Many of the banks in India are now going down the path of digital. They are looking at tech and fintech companies that can help them move their digital activities forward, either investing in them directly or using them as service providers. That is going to be a big growth area for investment here in India – banking-as-a-service platforms.”

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.