Payments
Payments sector keeps top spot for fintech investment globally
Total global investment activity (VC, PE and M&A) in payments 2018–2021*
Source: Pulse of Fintech H1'21, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 30 June 2021.
After a strong 2020, global investment in payments kept up the momentum in the first half of 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.
What to watch for in H2’21
- European challenger banks partnering with US banks to piggyback on existing bank charters.
- Increasing number of challenger banks focusing on customer niches, including minority communities, unbanked populations, LGBTQ2 customers, or high net-worth individuals.
- Continued proliferation of ‘buy now, pay later’ offerings and ‘pay by bank’ services.
- Strengthening focus on B2B payments solutions and services, like digitized AR/AP.
- Increasing interest in IPOs — both traditional and through SPAC mergers.
“We’ve seen some great examples of embedded finance so far in 2021, with traditional retailers partnering with financial institutions to embed deposit products or to provide holistic and complimentary offerings to their core customer base. This trend will continue to grow, fueled by e-commerce, open banking, and APIs.”
Chris Hadorn
Global Head of Payments,KPMG
Insurtech
Deal size and diversity driving global insurtech investment
Total global investment activity (VC, PE and M&A) in insurtech 2018–2021*
Source: Pulse of Fintech H1’21, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 30 June 2021.
After a strong H2’20, insurtech investment remained solid in Q1’21, including the $828 million SPAC merger of Clover Health in the US, the $818 million acquisition of GoCo Group in the UK by Future PLC,4 and a $650 million raise by Germany-based WeFox. VC funding was particularly strong in the insurtech space, driven by the continued maturation of startups and increasing valuations.
What to watch for in H2’21
- Partnerships focused on providing on-demand insurance products.
- Increasing investments targeting the supplemental benefits space.
- Continued focus on embedded insurance.
- Technologies focused on enabling agents and brokers.
- Vertical integration from insurtechs.
“Over the last few years, the really large insurtech deals were almost exclusively insurtech carriers. While we saw plenty of those deals happening in H1’21, including Next Insurance, Clear Cover, and Bought by Many, we also started to see larger deals in the enabling tech space, including Shift Technology — which is focused on process enablement, and Collective Health — which is a self insurance technology platform for businesses.”
Pat Kneeland
Manager, KPMG Innovation Lab,KPMG in the US
4 https://www.futureplc.com/2021/02/22/future-plc-acquires-goco-group-plc/
Regtech
In H1’21, surging interest sees regtech investment hit record annual high at mid-year
Total global investment activity (VC, PE and M&A) in regtech 2018–2021*
Source: Pulse of Fintech H1’21, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 30 June 2021.
Investment in regtech surged in H1’21, particularly in the Americas and Europe where the regtech space is maturing at a rapid pace. The constant evolution of regulatory amendments and implementations combined with the drive to reduce compliance costs is helping drive interest and investment in regtech.
What to watch for in H2’21
- Strengthening focus on cryptocurrency-focused regtech.
- Increasing investment from corporates looking to better manage their regulatory compliance.
- Growing maturity of regtech firms in different regions.
- Increasing M&A activity, particularly in the Americas and Europe.
“The evolving environment of business and new digital innovations are forcing banks and financial institutions to embrace the transformation to stay competitive. The massive migration during the pandemic to virtually accessing financial services amplifies the risks we were already facing (for example, fraud incidents have exploded due to new users on digital channels) and RegTech is promising the ability to quickly harness the power of technology and to positively transform risk management and regulatory compliance processes.”
Fabiano Gobbo
Global Head of Regtech, Partner, Risk Consulting,KPMG in Italy
Wealthtech
Wealthtech a big hit with VC investors in H1’21
Total global investment activity (VC, PE and M&A) in wealthtech 2018–2021*
Source: Pulse of Fintech H1’21, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 30 June 2021.
Global investment in wealthtech boomed in H1’21, surpassing the total investment seen in 2020 and nearing the record annual high set in 2015. VC investment was particularly strong, including a $600 million raise by Canada-based Wealthsimple, a $325 million raise by US-based CleanCapital, and a $300 million raise by US-based NYDIG.
What to watch for in H2’21
- Corporates continuing to target M&A in order to gain access to innovations.
- Increasing consolidation among suppliers across the value chain.
- Diversification of asset management platforms to offer a more diverse range of assets.
- Stronger focus on truly personalizing digitalized advice with respect to model portfolio services.
“Many of the innovations in wealthtech to date have been focused on improving the effectiveness of existing wealth management business models. One area where we do see new opportunities emerging relates to the use of investment platforms that put different asset classes, like real estate and other illiquid esoteric assets such as classic cars or wine, into the reach of standard investors.”
Bill Packman
Partner and Wealth Management Consulting Lead,KPMG in the UK
Cybersecurity
Cybersecurity investment goes through the roof
Total global investment activity (VC, PE and M&A) in fintech: cybersecurity 2018–2021*
Source: Pulse of Fintech H1’21, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 30 June 2021.
Total investment in cybersecurity grew dramatically in H1’21, driven by Nasdaq’s $2.7 billion acquisition of Canadian anti-financial crime management solution provider Verafin. VC funding in the space was also very strong in H1’21, led by a $543 million Series A raise by Transmit Security in what was described as the largest cybersecurity Series A deal in history.11
What to watch for in H2’21
- Strengthening M&A and investment focused on machine learning and automation for cybersecurity.
- Enhanced focus on managing and responding to ransomware attacks.
- Increasing investment in digital customer behavior analysis and fraud identification.
“Given the significant increase in digital transformation across enterprises, along with recent high-profile ransomware attacks, it's not surprising that AI and machine learning focused threat detection and fraud solutions are getting a lot of attention - both from corporations and investors. In addition to these critical investment areas, we’re also seeing interest in consumer identity and access management solutions that are shifting quickly towards password-less security solutions.”
Charles Jacco
Americas Cyber Security Services,Financial services Leader, PrincipalKPMG in the US
11 https://www.forbes.com/sites/rashishrivastava/2021/06/22/transmit-security-raises-543-million-the-largest-series-a-funding-round-in-cybersecurity-history/?sh=1ef575ab3d7a
Blockchain/crypto
Investment in blockchain and crypto in H1’21 more than double all of 2020
Total global investment activity (VC, PE and M&A) in blockchain & cryptocurrency 2018–2021*
Source: Pulse of Fintech H1’21, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 30 June 2021.
Investment in blockchain and cryptocurrencies heated up dramatically in H1’21, with investment more than twice the level seen in 2020, and soaring past the previous annual record high set in 2018.
What to watch for in H2’21
- Continued maturation of the cryptocurrency space
- Stronger separation between cryptocurrencies and the use of blockchain technologies
- Further focus on regulatory frameworks, particularly in India which could regulate cryptocurrencies as an asset class in H2’21.
- The evolution of exchanges focused on areas like NFTs.
“Between its digital currency and Belt and Road Initiative, China could create a real alternative to the supremacy of the US dollar over time. While the digital currency initiative is relatively small scale now — still in the testing phase — it has a lot of potential. With countries from areas like Africa and Southeast Asia signing trade agreements with China and potentially accepting the digital yuan as a mode of clearing trade, it could gain traction quickly. It’s going to be a critical area to watch over the next few years.”
Laszlo Peter
Head of Blockchain Services, Asia PacificKPMG Australia