Lack of mega M&A activity brings global fintech investment down — VC remains strong
At mid-year, global fintech investment across M&A, PE and VC was US$25.6 billion globally. The lack of mega-M&A deals, such as 2019’s acquisition of WorldPay by FIS for US$42.5 billion, was the key driver of the decline. Global VC investment in fintech remained robust, accounting for US$20 billion globally.
Despite COVID-19, strategic deals getting done
It is undeniable that COVID-19 had an impact on fintech deal activity in H1’20. New deals activity ground almost to a halt, with many of the completed deals in H1’20 reflecting long lead times and carryover activity from 2019. Many of the completed strategic deals also highlight fintech trends unaffected by the pandemic.
For example, Visa’s pending acquisition of Plaid for US$5.3 billion recognizes the growing importance of open data and API enablement in financial services. Dominant payment providers will continue to acquire fintech capabilities they can then provide to banks and other financial institutions. Payments and lending remained the most strategic areas of investment, accounting for large deals in Asia (i.e., Gojek, Pine Labs), the Americas (i.e., Stripe, Chime, AvidXchange) and Europe (i.e., Revolut).
We continue to see strategic deal activity and as COVID-19 has highlighted, digitization efforts are becoming a critical imperative. This also reflects the reality that building (internally) generally takes a longer time and hence, strategic M&A and investments can play an important role to respond more quickly.
Growth-stage companies driving widespread fintech investment
As startups set their sights on growth, they are attracting significant attention and funding, not only domestically, but from global investors and corporates looking to gain market share and access.
During H1’20, Australia-based Airwallex and Judo Bank raised US$160 million in VC investment and US$146.6 million from PE investors respectively, while Japan-based Paidy raised US$251 million, Sweden-based Klarna raised US$200 million and Brazil-based Nubank raised US$300 million. France and the Philippines also saw US$100 million+ fintech deals in H1’20.
Governments focusing on next steps of fintech evolution
During H1’20, a number of governments made big moves to push their fintech agendas forward. In its 2020 Budget, the UK announced a strategic fintech sector review to explore how the government can support fintech growth and competitiveness1.
In March, Australia re-opened submissions to its Select Committee on Financial Technology and Regulatory Technology to better understand how COVID-19 has affected the sector and identify supports that can be rapidly deployed2. Meanwhile, Hong Kong (SAR) introduced an ‘opt-in’ licensing program for Digital Asset Exchanges, and Singapore also introduced a licensing program for Digital Asset Exchange and platforms.
Fintech investors are focused on big bets and safer deals right now. This is making it difficult for smaller fintechs, even those with good business models, to raise funding. Some of them won’t have the liquidity they need to make it through the current crisis. Heading into H2’20, we will likely see more consolidation and more opportunistic investments.
Big techs and platform companies blurring the lines of fintech
Big techs and platform providers remained active in the fintech space in H1’20 in a bid to extend their market reach and customer value propositions. Indonesia-based ride-hailing platform Gojek, which also has a digital-payments offering, raised US$3 billion in H1’20 from investors including Google, Tencent, Facebook and PayPal3. Both Gojek and its rival Grab also made their own fintech investments. Gojek acquired Philippines-based payments company Moka in April, while Grab acquired Singapore-based robo-advisor Bento in January. The intermingling of big tech, platforms and fintech is only expected to grow as companies on all sides work to extend their reach and value.
Corporates doubling down on fintech investment due to COVID-19
COVID-19 has significantly accelerated digital trends. The rapid demand for and use of digital platforms, digital banking, no-touch payments and other fintech-related services in every region of the world is driving many financial services companies to double down on their fintech investments.
Financial institutions that have been lackadaisical about fintech to-date are recognizing that the industry dislocation caused by COVID-19 will have long-term implications and are, therefore, quickly increasing their investments.
Trends to watch for globally
COVID-19 will likely remain an active driver for fintech investment heading into H2’20. Regtech companies could gain traction, particularly those focused on credit-related solutions.
Data analytics for financial services will become critical as financial institutions look to gain access to alternative sources of data to enrich their understanding of customers and their risk exposures.
The ongoing acceleration of digital trends will drive investment not only in direct fintech solutions, but in all of the enabling technologies, such as cybersecurity, fraud prevention and digital identity management.
Stay up to date with what matters to you
Gain access to personalized content based on your interests by signing up todaySign up today