Germany
Ireland
Sweden
United Kingdom
Israel
Saudi Arabia
UAE

Germany

COVID-19 shifting banking industry in Germany — and view of fintech

Total fintech investment activity (VC, PE and M&A) in Germany 2017–2020*

Source: Pulse of Fintech H1’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 30 June 2020.

Although Q1’20 was soft, fintech investment in Germany was relatively resilient overall in H1’20, led by the US$570 million raise by N26, a US$73 million raise by Trade Republic and a US$65 million raise by Solarisbank.

COVID-19 is acting as a positive driver for many fintechs as it is shifting people’s views of digital banking. It is also driving interest in the B2B space as corporates look to quickly improve their digital operations. Over the medium term, these shifts could help fintechs become more sustainable and improve their paths to profitability.

In Germany, we are seeing that fintech is a proven and sustainable business model and that the strong level of investment will survive through the crisis or even become stronger. At the same time, fintechs with a high burn rate that have yet to achieve reasonable levels of revenue will be severely challenged. Investors are focusing on safer bets right now, so early-stage and less well-positioned companies could struggle to get the funding they need to survive.

Bernd Oppold

Partner, Advisory,KPMG in Germany

Ireland

Ireland gains attractiveness in wake of Brexit

Total investment activity (VC, PE and M&A) in fintech in Ireland 2017–2020*

Source: Pulse of Fintech H1’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 30 June 2020.

H1’20 was exciting for fintech in Ireland, with the US$162 million acquisition of Irish-founded Prepaid Financial Services (PFS) by Australia’s EML Payments (note that the company has its head office in London but a joint front office in Dublin, hence its deal value ascribed to UK funding aggregates), the US$83 million acquisition of Payzone Ireland and a US$80 million funding round by Fernego. Mastercard also announced plans for a technology hub in Dublin.

Ireland also continued to gain traction from UK-based fintechs such as Starling Bank and Revolut, looking to create a Brexit-hedge given the 12-month lead-in period will expire in January 2021.

Ireland is expected to remain hot into H2’20 as UK and global fintechs work to ensure they are able to service their customers across Europe.

COVID-19 has certainly accelerated the move to adopt digital payment methods. At the start of lockdown, the Irish banks moved swiftly to increase the tap-and-go limit on debit and credit cards, making it easier to tap a card rather than use cash. And the word Revolut has almost become a verb. ‘Just Revolut me’ has become a familiar expression to instruct the transfer of funds. Digital payment methods are now mainstream. It was starting to happen prior to H1’20, but COVID-19 has really accelerated the trend.

Anna Scally

Partner and Fintech Leader,KPMG in Ireland

Sweden

Sweden’s fintech dominance continues in Nordic region

Total fintech investment activity (VC, PE and M&A) in Sweden 2017–2020*

Source: Pulse of Fintech H1’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 30 June 2020.

The fintech investment environment in Sweden remained strong in H1’20, despite a sharp drop in deals activity brought on by COVID-19.

A US$200 million raise by digital bank Klarna and a US$100 million raise by API-focused Tink in January helped offset very slow activity in March and April. While payments remains the most active fintech space both in Sweden and the Nordic region, other subsectors are gaining more attention, including insurtech and regtech.

In May, digital loan refinancing company Anyfin raised US$30 million. The big banks in Sweden are also becoming more focused on fintech, particularly regtech after one bank was given a severe fine in H2’20 for not being in compliance with anti-money laundering requirements.

We live in a low-interest market and there is a lot of capital that has to go somewhere, so there is still a strong appetite for fintech investment in Sweden.

While there is a lot of uncertainty around COVID-19, fintech is showing a lot of resilience as a sector. There’s a lot of interest, particularly from established, traditional financial institutions that are still looking to invest in these kinds of solutions.

Marten Asplund

Head of Financial Services,KPMG in Sweden

United Kingdom

UK corporate doubling down on fintech funds

Total fintech investment activity (VC, PE and M&A) in the UK 2017–2020*

Source: Pulse of Fintech H1’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 30 June 2020.

The UK saw a solid amount of fintech funding in H1’20 with several US$100 million+ megadeals (e.g., Revolut, Checkout.com, Starling Bank and Currency Cloud).

Corporate investment is expected to become a big focus in the UK, given that many financial services companies are looking to double down on their fintech funds given the major digital dislocation in the market due to COVID-19. Over the long-term, the impact of the pandemic could be beneficial in terms of accelerating digital change initiatives amongst corporates.

Current events are driving a real digital dislocation in the financial services market. Certainly, here in the UK, legacy firms are realizing that they need to become a lot more progressive in terms of how they invest in new capabilities. The corporates will likely come out of this a lot stronger and with a much firmer commitment to fintech investment.

Anton Ruddenklau

Global Co-Leader of Fintech,KPMG International, Partner, Head of Digital & Innovation,KPMG in the UK

Israel

Open banking in Israel delayed by COVID-19, but remains a priority

Total investment activity (VC, PE and M&A) in fintech in Israel 2017 – 2020*

Source: Pulse of Fintech H1’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 30 June 2020.

Initially, Israel targeted December 2020 for its open banking regime. Due to COVID-19, the target date has been moved to March 2021. The shift to open banking could cause a shakeup in banking given the sector is currently dominated by five banks. Open banking is also expected to spur innovation investment by these banks so they can remain competitive. Some banks are already looking at where to invest, how to use APIs and what partners to work with in order to improve customer services.

New digital bank in Israel still targeting 2021 launch

In H2’19, the Bank of Israel issued its first new banking license in 40 years for the establishment of a new digital bank. The First Digital Bank (in setup), is helmed by one of Mobileye’s cofounders, Amnon Shashua. The standalone digital bank would be unique given it would use an outsourced IT core banking platform. Despite COVID-19 challenges, the new bank is expected to launch in H2’21.

As online transactions skyrocket, Israel fraud prevention companies could see increased interest

With the acceleration of digital trends, there will likely be an uptick in interest in Israeli companies like Forter and Theta Ray, that are focused on cybersecurity and fraud prevention. Israel could also see interest in its payments-specific security firms, like Paygilant, start to grow. The Government of Israel is working to spur innovation at the intersection of financial technologies and cybersecurity. In May, it partnered with Mastercard and Enel X to announce the creation of a fintech-specific cybersecurity innovation lab.

The vision of Open Banking is to turn the financial industry into plug-and-play, allowing customers to own their data and the ability to choose how and when to use it. However there are still obstacles in the way, such as privacy, cyber, technology barriers and legal issues, that need to be solved in order for this vision to come true. We hope that the fintech industry will have the long breath needed make this change together with the financial services industry.

Ilanit Adesman

Partner, Financial Risk Management,KPMG in Israel

Saudi Arabia

Saudi Arabia encouraging development of fintech ecosystems

As part of its Vision 2030 strategy, Saudi Arabia established the Fintech Saudi initiative to support the development of a fintech ecosystem focused on enhancing financial inclusion and encouraging digital financial services.

As a part of this, the Saudi Arabian Monetary Authority (SAMA) launched a fintech regulatory sandbox to support emerging fintechs. These initiatives have helped grow a number of fintechs, including Hala (formerly Halalah), STC Pay and Geidea. In H2’20, SAMA also approved new payments licenses for e-wallet providers Bayan Pay and Hala 1.

Diversity of early-stage fintechs in Saudi Arabia likely to boost investment over time

While payments is a key focus for fintech development, Saudi Arabia has also seen fintechs sprouting in other sectors, including lending (e.g., Scopeer, Manafa Capital), insurtech (e.g., Tameeni, Bcare), wealthtech (e.g., Wahed Capital, Haseed Invest), personal finance (e.g., Malem Financing, Sulfah) and investment banking (e.g. Smartstream).

Given the mix of sectors and strong government support, it is expected that fintech investment will grow as the ecosystem matures.

1https://xpressriyadh.com/sama-approved-licences-for-digital-wallets-in-saudi-arabia

Between 2017 and 2019, the value of fintech transactions increased at a rate of over 18 percent each year, reaching US$20 billion in 2019. Two-third of the investments in the field of payments – in April 2020, the number of smart phone payment transactions, increased by 352 percent compared to the year before. The central bank is poised to develop the local fintech ecosystem through initiatives such as Fintech Saudi and the regulatory Sandbox, and works with other stakeholders including the capital markets authority to drive growth. Through this close collaboration of regulators, incumbents and newcomers in the financial sector, Saudi Arabia is sending a strong signal to the world about its ambitions in the fintech arena. As digital transformation continues to gain traction, more sector growth — and therefore investment — is expected heading into H2’20.

Ovais Shahab

Head of Financial Services,KPMG in Saudi Arabia

UAE

UAE Abu Dhabi Global Market (ADGM) providing opportunities for fintech testing and development

The UAE is a strong proponent of fintech. The Abu Dhabi Global Market (ADGM), one of the Abu Dhabi financial fee zones, provides a number of fintech support structures. The most prominent of these is RegLab, which operates as a sandbox for financial institutions and fintechs to develop and test their offerings.

In H2’20, the Financial Services Regulatory Authority of the ADGM launched three regtech pilot projects to help financial institutions improve their compliance and risk management. The projects include an AI-powered regbot for license applications, API-enabled monitoring of licensed institutions and a move to digitize regulations1.

UAE government providing funds and support for startups and entrepreneurs

The Government of the UAE offers a number of funds and support programs for startups and entrepreneurs, including the Mohammed Bin Rashid Innovation Fund (US$550 million).

In order to encourage diversity, UAE accelerator DIFC FinTech Hive also established the accelerateHER mentorship program in partnership with Carter Murray specifically to develop female fintech talent2.

1https://www.adgm.com/media/announcements/fsra-launches-regtech-initiatives/

2https://www.difc.ae/newsroom/news/difc-fintech-hive-launches-career-mentorship-programme-accelerateher

The UAE government has moved forward with a number of initiatives in order to help and foster the growth of fintech. The RegLab, a sandbox style program for fintechs, is a big part of this effort, in addition to programs like accelerateHER to promote diversity in entrepreneurship. These, combined with startup funds, will be a big part of developing the UAE’s fintech ecosystem over time.

Abbas Basrai

Partner and Head of Financial Services,KPMG in the Lower Gulf region