Venture capital investment in fintech remains steady; M&A activity recedes – report

The overall global fintech funding receded during the first half of 2020, with $25.6bn of investment recorded across 1,221 deals. However, corporate deals underpinned venture capital (VC) activity, KPMG’s bi-annual The Pulse of Fintech H1’20 report suggests.

The EMEA region saw $4.6bn in fintech investment in H1 2020, the report states.

Furthermore, the fintech market in the Middle East is expected to growth for the foreseeable future with key jurisdictions all investing in fintech ecosystems.

Abbas Basrai, partner and head of financial services, KPMG in the UAE, explained: “The UAE government has moved forward with a number of initiatives to help and foster the growth of fintech. The RegLab, a sandbox style programme, is a big part of this effort, in addition to programmes like accelerateHER to promote diversity in entrepreneurship. These, combined with startup funds, are likely to be a big part of developing the UAE’s fintech ecosystem over time.”

The Covid-19 also catalysed the acceptance of digital business models in the Middle East, driving traditional banks based out of the region to increasingly consider partnerships and alliances with fintech companies to accelerate their digital journeys.

Many deals that happened during the first six months of the year were initiated in late 2019. The Covid-19 pandemic saw new deal activity slow down considerably, except in high-priority sectors like payments.

However, investor interest in platform businesses remained incredibly strong in H1 2020, particularly in less mature fintech markets. Platform business continued to see significant investment from investors and large techs.

M&A
During H1 2020, M&A accounted for just $4bn of fintech investment globally (compared to $85.7bn in H2’19), including the $1.3bn reverse merger of Open Lending. The trend reflected a general slowdown in deal activity, and the skepticism of investors as they re-considered valuations and risk appetite on major deals.

The Covid-19 pandemic is likely to remain a key driver of change for fintech investment heading into H2 2020, given the strong acceleration of digital trends, such as the use of contactless payments and the demand for and use of digital service models.

The ongoing acceleration of digital trends may drive investment not only in direct fintech solutions, but also in related enabling technologies – such as cybersecurity, fraud prevention and digital identity management.

Platform businesses may also continue to an area of interest for investors, particularly in less mature jurisdictions.