Global fintech market receives $107.8 billion in investment, according to KPMG report

Global fintech investment declined from $111.2 billion in H2’21 to $107.8 billion in H1’22 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 H1’22 edition of KPMG’s Pulse of Fintech, the Asia-Pacific region saw total fintech investment more than double – from $19.2 billion in H2’21 to a record $41.8 billion in H1’22 – 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.

VC investment also declined between H2’21 and H1’22 – 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 $1.1billion raise by Germany-based Trade Republic and a $1 billion raise by UK-based Checkout.com.

The payments space remained lucrative in H1’22, 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,” said Anton Ruddenklau, Global Head of Financial Services Innovation and Fintech, 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 H2’22 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.”

H1’22—Key Highlights

  • Global investment in fintech dropped from $111.2 billion across 3,372 deals in H2’21 to $107.8 billion across 2,980 deals in H1’22.
    • The Asia-Pacific region attracted $41.8 billion
    • The Americas attracted $39.4 billion – of which the US accounted for $34.9 billion,
    • The EMEA region attracted $26.6 billion.
  • Global VC investment declined from $66.5 billion in H2’21 to $52.6 billion in H1’22.
    • The Americas attracted $27.2 billion in investment
    • EMEA attracted a record $16.6 billion
    • the Asia-Pacific region saw $8.7 billion.
  • Global M&A activity was strong in H1’22, with $49.1 billion in deal value, including $31.8 billion in the Asia-Pacific, $10.1 billion in the Americas, and $7.2 billion in the EMEA region.
  • Global PE investment remained steady, with $6.1 billion in investment in H1’22, including $2.7 billion in EMEA, $2 billion in the Americas, and $1.3 billion in the Asia-Pacific.
  • Corporate-participating investment accounted for $25.9 billion in investment during H1’22, including $13.1 billion in the Americas, $8 billion in EMEA, and $4.7 billion in the Asia-Pacific.
  • Payments accounted for $43.6 billion of investment in H1’22, while crypto and blockchain attracted $14.2 billion, regtech attracted $5.6 billion, and insurtech saw $3.8 billion.
  • Global investment in the insurtech sector dropped to $3.8 billion in H1’22 – far off pace to match the $14.8 billion in investment seen during 2021.

EMEA region sees major decline in M&A, but record VC funding

Fintech investment in the EMEA region dropped from $31.6 billion in H2’22 to $26.6 billion in H1’22, driven largely by a 50 percent decline in M&A deal value (from $15.7 billion in H2’21 to $7.2 billion in H1’22). The region saw only two $1 billion+ M&A deals during H1’22: 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 H1’22 – 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 H1’22, 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 Shamit at KPMG SA.

Payments space remains dominant among fintech subsectors

Investment in the payments space was incredibly strong in H1’22, 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 for fintech investors

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 singlehandedly break 2021’s record $5.2 billion in global cybersecurity investment.

Uncertain future ahead

H1’22 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 H1’22 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 Shamit at KPMG SA. “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 Anton. “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.”

 

View full report here:

DE_ KPMG Pulse of Fintech_H1 2022

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