After the global pandemic brought many deals to a halt in H1’20, H2’20 reversed the trend as investors and fintechs learned to do business in a new normal.
Fintech investment dropped from US$168 billion in 2019 to US$105 million in 2020, in part due to the lack of mega M&A deals like 2019’s US$42.5 billion acquisition of WorldPay by FIS. After a soft start to the year, H2’20 saw US$71.9 billion in fintech investment across global M&A, PE and VC deals — more than double the US$33.4 billion seen in H1’20.
We’re going to see larger and more wide-spread M&A in fintech in 2021 – whether it is fintechs seeking to achieve a position of dominant scale in a segment or geography or incumbents needing to accelerate their digital transformation agenda.
Amidst the pandemic, fintechs attracted US$42.3 billion in VC investment, in a year that ended second only to 2018 — when Ant Financial raised US$14 billion in the world’s largest private financing round ever. US-based wealthtech Robinhood attracted the largest VC investment in H2’20, raising US$1.3 billion across two deals in H2’20: a US$600 million raise in July and a US$668 million raise in October.
Digital banks attracted a number of VC mega rounds in H2’20, with Sweden-based digital bank Klarna raising US$650 million, Revolut raising US$580 million, and US-based Chime raising US$533.8 million.
In H2’20, fintech unicorns were born in the US (Next Insurance, Chainalysis, Better.com, Forter, and others), China (Waterdrop), Canada (Wealthsimple), India (Razorpay), the Netherlands (Mollie), and Brazil (Creditas). Two countries also saw their first fintech unicorns: Saudi Arabia (STC Pay) and Uruguay (dLocal). The diversity of these unicorns is a testament to the rapidly evolving global fintech ecosystem.
This year, the US market has really accelerated away from the rest of the fintech market. There’s been interesting action from Gojek and on the digital banking front in Europe, but the reality is that 2020 has been a year where the US and digital payments companies have really excelled.
M&A activity grew from US$10.9 billion in H1’20 to over US$50 billion in H2’20 — led by the US$22 billion acquisition of TD Ameritrade by Charles Schwab. Increasing M&A activity in the US drove the rebound, with the US accounting for nine of the top ten M&A deals, including TD Ameritrade, Credit Karma (US$7.1 billion), Vertafore (US$5.3 billion), Iberia Bank (US$2.5 billion) and Avaloq (US$2.2 billion).
Fintech was a priority for governments and regulators around the world in 2020. During H2’20:
Corporate participation in venture investment in fintech was incredibly strong in 2020, helping drive US$21 billion globally, including over US$9 billion in H2’20. Over the next couple of years, corporate investment is expected to grow significantly as more legacy firms continue to take action on the wake-up call provided by COVID-19 by undertaking acquisitions, making CVC investments and forging collaborative partnerships.