Global fintech investment declined from $111,2-billion in the second half of 2021(H221) to $107,8-billion in H122 but remained remarkably resilient compared to historical trends given the challenges affecting the broader investment market, including geopolitical uncertainty, growing inflation, and increasing interest rates.
According to the H122 edition of KPMG’s Pulse of Fintech, the Asia-Pacific region saw total fintech investment more than double – from $19,2-billion in H221 to a record $41,8-billion in H122 – with the $27,9-billion acquisition of Australia-based Afterpay by Block accounting for more than half of this total.
Meanwhile, both the Americas and EMEA regions saw fintech investment dip – from $59,7-billion to $39,4-billion and from $31,6-billion to $26,6-billion respectively.
Venture capital (VC) investment also declined between H221 and H122 – from $66,5-billion to $52,6-billion.
Compared to all periods outside of 2021, the amount was incredibly robust. The Americas accounted for the largest amount of VC funding ($27,2-billion), while EMEA set a new record high for a six-month period ($16,6-billion), led by the world’s two largest raises during the period: a $1,1-billion raise by Germany-based Trade Republic and a $1-billion raise by UK-based Checkout.com.
The payments space remained lucrative in H122, with $43,6-billion of investment. Despite major market challenges, crypto and blockchain attracted the second highest amount of funding from a sector perspective ($14,2-billion).
“2021 was a banner year for the fintech market globally, which makes the first half of 2022 seem slow by comparison,” says Anton Ruddenklau, global head of financial services innovation and fintech at KPMG International.
“But in reality, many sectors within the fintech market have shown strength and resilience. While the fintech market will likely be quite challenged in H222 due to global uncertainty and broader economic concerns, fintechs will likely continue to attract significant attention and investment – if at lower levels than last year.”
According to Shamit Govind, partner: digital consulting at KPMG SA: “Whether you’re the CEO of a large financial institution or the founder of an emerging fintech, understanding how market dynamics have shifted could be critical to your competitiveness and sustainability.
“Fintech investors are now becoming more discerning with their investments – focusing on profitability and cash flow when evaluating opportunities. Investors are also likely to pay more attention to areas adjacent to traditional financial services offerings, such as open data and decentralized finance.
“Certainly, the B2B space is also expected to be a high priority for investors, and we also anticipate increasing focus on underdeveloped fintech markets, including Africa.”
Fintech investment in the EMEA region dropped from $31,6-billion in H222 to $26,6-billion in H1’22, driven largely by a 50% decline in M&A deal value (from $15,7-billion in H221 to $7,2-billion in H122).
The region saw only two $1-billion+ M&A deals during H122: the $3,9-billion merger of Italy-based Nexi and SIA and the $1,8-billion acquisition of UK-based Interactive Investor by Abrdn.
While M&A declined significantly, VC investment in the region grew to $16,6-billion in H122 – slightly eclipsing the previous record high of $16,5-billion set in H1’21. EMEA also saw a record of $2,7-billion in PE funding in H122, including a quarterly record of $2,1-billion in Q1.
“As we know, 2021 was a record year for fintech investment in Africa, and the momentum is increasing. While the focus remains payment services and digital banking, we still expect to see more development of other areas such cybersecurity automation and certainly B2B solutions will become even more attractive to investors, which we believe means that fintechs will continue to focus on data-driven solutions,” says Govind.
Payments space remains dominant
Investment in the payments space was incredibly strong in H122, accounting for $43,6-billion compared to the $60,3-billion seen during all of 2021.
In addition to the mega acquisition of Afterpay by Block (formerly Square) for $27,9-billion, the payments space also saw the $2,6-billion buyout of Bottomline Technologies by PE firm Thomas Bravo, and a $1-billion VC raise by UK-based Checkout.com.
Cybersecurity still a key focus
Interest in cybersecurity remained very strong at mid-year, with $1,2-billion in investment globally, including four big raises in the US: a $550-million raise by Fireblocks, a $170-million raise by Chainalysis, and $100-million raises by TokenEx and Cowbell Cyber.
In March, Google also announced plans to acquire incidence response company Mandiant for $5,2-billion. If completed, the deal would single-handedly break 2021’s record $5,2-billion in global cybersecurity investment.
Uncertain future ahead
H122 saw numerous challenges affect the broader investment market, including geopolitical uncertainty, turbulence in the public markets, and rising inflation and interest rates.
With no end in sight to many of these challenges, the fintech market could see activity slowing considerably – particularly compared to the major record highs seen in 2021.
“Challenger banks continued to attract a significant amount of attention during H122 in many regions of the world, including Africa, as many remained focused on evolving and growing their value propositions to include stronger hyper-personalisation, data driven predictive analytics and predictive banking services, as well as adaptive customer banking experiences,” concludes Govind.
“However, what we can also expect is continued development, evolution, and implementation of regulatory regimes and guidelines, such as MiCA, Basel IV and ESG standards. Additionally, financial system regulators are now likely to widen their expectations beyond traditional banks and financial institutions to include other contributors to the capital markets – such as asset managers and challenger banks.”
“With valuations coming under pressure, fintech investors are going to enhance their focus on cash flow, revenue growth, and profitability – which could make it more difficult for some fintechs to raise funds,” said Ruddenklau. “M&A activity, however, could see an uptick as struggling fintechs look to sell rather than holding a downround, corporate and PE investors move to take advantage of better pricing, and well-capitalised fintechs look to take out the competition.”