France
Germany
Ireland
Sweden
United Kingdom
Israel
Saudi Arabia
UAE

France

Second highest year ever for fintech investment in France

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

Source: Pulse of Fintech H2’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 31 December 2020.

Fintech investment in France reached $839 million in 2020, its second strongest year ever after 2019. Online lending company October attracted the largest deal of the year – $304 million in corporate investment from Intesa Sanpaolo and Caisse des Dépôts (Debt Financing).10

The fintech ecosystem in France continued to mature, with bigger rounds, growing investment from the US, China and Europe, and increasing adoption of fintech solutions by consumers and incumbent institutions. Paris has been one of the fastest-growing fintech ecosystems and preferred destinations for VC investors, particularly in the later stages of growth.

Collaboration between established players and fintechs was a big focus in 2020, to help them respond to shifting consumer needs. Automation and digitization will be key for reducing processing costs and improving customer experience for incumbent players.

Neobanks will likely continue to be attractive for investors and incumbent institutions, as seen by the acquisitions of Shine by Societe Generale and Anytime by Orange Bank. Given success in development around mobile banking, we anticipate an increased focus on financial inclusion, international development and SME market opportunities.

In 2021, payments including the ‘buy now pay later’ market will continue to be hot in France and a top attraction for private equity. Overall outlook looks promising for mature fintech in France mainly in neobanks/payment, insurtech/healthtech, lending or banking-as-as-service offerings. But the capital will remain a development point in 2021 both at seed and growth stages to compete with global unicorns and bigtechs.

In France, we are also seeing a lot of interest in mobile payment (including the ‘buy now pay later’ market), lending platforms, regtech and cybersecurity because of the increased demand for and use of digital channels in this new reality. Traditional players are embracing technology with a new cooperation with fintech because they need to be very efficient right now (reducing processing costs) and to offer a better customer experience but they also need to reinforce their cybersecurity as it is a critical aspect of providing digital services.

Stephane Dehaies

Associate Partner, Management Consulting, FSI,KPMG in the UK

Germany

Germany soars past $1 billion in VC investment during 2020

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

Source: Pulse of Fintech H2’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 31 December 2020.

VC investment was very strong in Germany, reaching a record high of $1.2 billion in 2020. Challenger bank N26’s $570 million raise in H1’20 was Germany’s largest round of the year, with an $83 million raise by digital insurance manager CLARK in H2’20 coming a distant second.

M&A in Germany stalled in 2020 as established financial companies recognized the increasing levels of risk coming from the B2B world given potential loans outstanding. M&A activity will likely pick up again once COVID-19 begins to wane.

At the beginning of H2’20, Germany-based Deutsche Bank signed a ten-year strategic partnership with Google focused on bringing its data to the cloud and on co-innovating on technology-driven banking products; the bank announced further enhancements in December,11 including plans to use Google Cloud’s AI and data to enhance its capabilities.12

In Germany, we expect to see more e-commerce platforms, and all of them will need payments services. The question is ‘will they really want to set up infrastructure themselves?’ It will be an exciting area to watch as these platforms could drive a significant amount of demand for investment in areas like white-label banking-as-a-service and payments-as-a-service offerings.

Bernd Oppold

Partner, Advisory,KPMG in Germany

Ireland

Ireland well positioned to see increased fintech investment post-Brexit

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

Source: Pulse of Fintech H2’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 31 December 2020.

Regtech continued to be a priority area for investors in Ireland, particularly corporates. Over the next few quarters, banks in Ireland are expected to increasingly partner with or buy fintechs in order to deliver on their digitization agendas.

B2B-focused fintech solutions continued to grow in Ireland, particularly related to funding and financing platforms; during H2’20, Wayflyer – a company that provides financing and marketing analytics raised a $10.2 million seed round in H2’20.

Increasingly, big tech companies are partnering with corporates and the big four professional services firms to go to market together; they are very keen to provide technology platforms and expertise, and are working to invest in relationships and projects in the financial services sector.

As all UK licensed banks will need to be licensed in an EU jurisdiction in order to service their EU based clients, we expect to see continued investment in Ireland by those banks and financial institutions that have chosen Ireland as the base for their European operations.

In Ireland, in the face of competition from fintechs, we have seen real interest by the incumbent banks in making their lending processes much more efficient. Critically, they need to adapt quickly and adopt much more streamlined lending processes in order to remain relevant for their clients, particularly SME’s, many of whom are now in trouble as a result of COVID-19.

Anna Scally

Partner and Fintech Leader,KPMG in Ireland

Sweden

Sweden driving fintech investment in Nordic region

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

Source: Pulse of Fintech H2’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 31 December 2020.

In H2’20, Sweden-based digital bank Klarna raised Europe’s largest fintech-focused VC funding round of 2020: a $650 million raise expected to help fuel its aggressive growth strategy.

During 2020, Sweden was the most active country in the Nordic region in terms of fintech investment, in part due to the maturity and diversity of its fintech companies – which span fintech sectors from payments and regtech to insurtech and robo-advisory.

Open banking continued to gain traction in the Nordics, with Sweden-based banking aggregator Tink raising $101 million in H2’20.

Insurtech continued to grow on the radar of investors in the Nordic region, with different insurtechs aiming at improving specific niches within the insurance value chain; while investment is still modest in the insurtech space, it is expected to grow.

Lending companies could face challenges in the Nordic region in H1’20 given the potential credit losses for banks and alternative lenders. This will be a key area to watch in H1’20.

Regtech is one area where we’ll likely see increasing investment in the Nordic region. There is already an increasing number of regtechs applying advanced analytics and AI to help financial services players manage their different regulations in the current and future environment.

Karin Sancho

Head of Financial Services,KPMG in Sweden

United Kingdom

Uncertainties with COVID-19 and Brexit cause slowdown in fintech investment in UK

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

Source: Pulse of Fintech H2’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 31 December 2020.

Uncertainty permeated the UK market in 2020, driven in part by various geopolitical factors like Brexit, in addition to the widespread impact of COVID-19. Many investors took the time to focus on their current portfolios in order to make sure they could perform well.

VC funding in the UK was quite robust, particularly in H2’20 with a $580 million raise by challenger bank Revolut, a $343 million raise by digital mortgage lender Molo and a $166 million raise by challenger bank Monzo.

In addition to digital banking, other hot areas of investment in the UK included embedded finance and ‘buy now, pay later’ solutions, in addition to B2B-focused solutions related to KYC and AML.

A number of global VC firms increasingly targeted opportunities in the UK and Europe; in H2’20, Sequoia announced it would open a new European investment office in London.

With Brexit completed as of December 31, 2020, there is strong optimism for the fintech market in 2021 – with expectations that M&A activity will rebound to a large degree.

The pandemic has acted as a catalyst for a number of fintech business models. We’ve seen the VC investment community in the UK really go off on that as a result. Hence why we’ve seen a big difference this year, with much more of these VC-type investments – which tend to be more opportunistic – and less M&A where you’ve got more incumbents involved.

Peter Westlake

Director, Global Strategy GroupKPMG in the UK

Israel

Fintechs in Israel eye IPO and SPAC exists

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

Source: Pulse of Fintech H1’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 31 December 2020.

Both the banking and insurance industries saw massive investments in digitizing front and back office activities – a trend that began prior to COVID-19 but was accelerated by it.

In H2’20, Israel, the UAE and Bahrain signed the Abraham Accords – a peace agreement that lays the foundation for increased interconnectivity. The agreement is expected to significantly enhance fintech activity in the region and spur investment and strategic partnerships.

Given the success of the Lemonade US IPO and Hippo’s and Next Insurance values in their recent fund raising in the US – three insurtechs based in the US but led by Israeli entrepreneurs, interest in insurtech gained steam in Israel in H2’20. Israel-based WeSure gained significant attention as it worked to raise a new funding round in advance of a possible IPO to fuel its expansion into the US market.

IPO activity is expected to increase in 2021, with a number of Israeli-based fintechs eying the US market for either a direct IPO or a SPAC, including social trading firm EToro and payments company Payoneer.

Open banking is gaining more attention in Israel beyond regulation requirements, with an increasing number of fintechs focusing on the space and banks searching for the newest solutions to expand their offering to customers. In 2021, we will likely start to see more investments in the infrastructure to support these activities. We also expect to see regtech become more important as banks continue to digitize their back and front office and look for ways to efficiently meet different regulations.

Ilanit Adesman

Partner, Financial Risk Management,KPMG in Israel

Saudi Arabia

Fintech ecosystem evolving in Saudi Arabia as banks look to partner with fintechs

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

Source: Pulse of Fintech H1’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 31 December 2020.

Saudi Arabia continued to work towards its Vision 2030 strategy, implementing initiatives focused on encouraging development and foreign investment in different fintech sectors.

Payments and money transfer focused fintechs have seen the most investor interest to date. In H2’20, mobile payments company STC Pay became Saudi Arabia’s first fintech unicorn.

Saudi Arabia continued to offer a number of programs to help drive fintech innovation, including improved visa programs for key knowledge workers (e.g., Golden Visas) and the Saudi Central Bank fintech regulatory sandbox.

Increasingly, banks in Saudi Arabia are partnering with or working to acquiring fintech players in order to gain capabilities related to mortgage financing and microfinancing – two areas considered to be underserviced in the country.

The challenges of 2020 did present opportunities for the fintech ecosystem to grow manifold – especially in the field of payments as hygiene consideration, e-commerce and other delivery services catalyzed cashless transactions. Even though it was a sudden shock for business, a timely repositioning of digitalization from an opportunity to a necessity was widely observed. Banking in a lockdown has helped strategists not to rely on ordinary evolution; and the presence of licensed fintechs worked as a savior to business.

Ovais Shahab

Head of Financial Services,KPMG in Saudi Arabia

UAE

Abraham Accords geared to fuel fintech activity in the UAE

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

Source: Pulse of Fintech H1’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 31 December 2020.

The UAE has worked diligently to reform its banking and financial services sector to support the evolution of its innovation and fintech ecosystems, including allowing 100% foreign ownership of companies in specific sectors, improving visa processes, and introducing integrated e-services to support establishing businesses in the UAE.

Key areas of fintech investment in the UAE include payments, remittances, insurance, online lending, digital banking, crowd-funding and, increasingly, cryptocurrencies and crypto exchanges – particularly in the Abu Dhabi Global Market (ADGM).

The Abraham Accords Peace Agreement, which was signed in H2’20, is expected to fuel collaboration between the UAE and Israel at multiple levels, including between regulators and between banks and fintechs, helping to spur fintech development and investment. Established Israel-based fintechs will likely also look to the UAE as a target for expansion.

In 2021, biometric security systems, blockchain and AI are expected to benefit from increased investment in the UAE, in addition to open banking initiatives.

A major change that happened in H2’20 is that the UAE’s ADGM signed an MOU with the Israeli Security Authority and Bank Hapoalim to collaborate on fintech innovation initiatives, developing fintech solutions and support fintech companies looking to establish a presence in the region. This move will be very beneficial for the further development of both fintech ecosystems and for the growth of a wide range of fintechs.

Abbas Basrai

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