As many as 163 unicorns were created in the first half of 2021 as global fintech funding across M&A, PE, and VC deals soared to a new high, according to KPMG’s Pulse of Fintech, a bi-annual report on fintech investment trends.
Dry powder cash reserves, increasing diversification in hubs and subsectors, and strong activity across the world contributed to the record start to 2021, with funding increasing from USD 87.1 billion in H2’20 to USD 98 billion in H1’21.
There have been 2,456 deals in H1’21, whereas there were 3,520 deals in the whole of 2020 amounting to a total of USD121.5 billion.
Fintech valuations remained very high in H1’21 as investors continued to see the space as attractive and well-performing – a likely driver in the explosion of unicorn births with 163 created in the first half of the year.
Corporates, under pressure to increase the velocity of their digital transformation and to enhance their digital capabilities, were particularly active in venture deals, participating in close to USD 21 billion in investment over nearly 600 deals globally, with many realizing it is quicker to do so by partnering with, investing in, or acquiring fintechs.
M&A deals continued at a very healthy pace, accounting for USD 40.7 billion across 353 deals in H1’21, compared to USD 74 billion across 502 deals during all of 2020.
The total fintech investment is expected to remain very robust in most regions of the world in the second half of 2021. While the payments space is expected to remain a dominant driver of fintech investment, revenue-based financing solutions, banking-as-a-service models, and B2B services are expected to attract increasing levels of investment.
Given the rise in digital transactions, and the subsequent increase in cyberattacks and ransomware, cybersecurity solutions will likely also be high on the radar of investors. Global investment in cybersecurity reached a new annual record at mid-year – rising from USD 2.2 billion in 2020 to over USD 3.7 billion in H1’21.
In the UAE, the digital bank space got some attention in H1’21 with the announcement of the upcoming launch of Zand — the UAE’s first independent digital bank. International interest in the UAE continued to grow, with both Ireland-based regtech company DX Compliance39 and US based payments firm Stripe40 launching operations in the UAE during H1’21.
The Financial Services Regulatory Authority of the ADGM introduced a framework to regulate open banking platforms to enhance consumer data protection. Looking forward, investment in payments and contactless technologies is expected to remain strong in the UAE. Investor interest in Islamic finance-focused startups, such as Shariah compliant fintechs, is expected to grow over the next few quarters.
Goncalo Traquina, Partner, KPMG Lower Gulf, said: “Accelerators and events are an important part of building up the fintech ecosystem in the UAE. H1’21 saw some interesting developments in this area. The Ministry of Economy and the Securities and Commodities Authority launched a Fintech Megathon to help reimagine financial services in the UAE.
“UAE technology ecosystem Hub 71 and US based Modus Capital also launched Ventures Lab — a program aimed at helping early stage founders build viable products.”
