Fintech reaches maturity. The sector has attracted record levels of investment this year as fintechs and financial institutions increasingly become equals.
Are we seeing some kind of last minute rush? Over the past six months, investment in the fintech sector reached $98 billion, with the sum including merger & acquisition activity, private equity and venture capital, according to a bi-annual report released by consultancy KPMG.
The level is a record start to the year, particularly in comparison to the pandemic-hit 2020, when investments for the entire year totaled $121.5 billion. The report, which looks at fintech investment trends, said that cash reserves, hub and sub-sector diversification and strong levels of activity throughout the world contributed to the performance.
Herding Unicorns
High valuation levels also drove the creation of 163 startups with $1 billion or more in value, or unicorns, in the first half.
«Fintech is an incredibly hot area of investment right now—and that’s not expected to change anytime soon given the increasing number of fintech hubs attracting investments and growing deal sizes and valuations,” said Anton Ruddenklau, KPMG’s Global Fintech Co-Lead».
Corporates Lead the Pack
Corporates, under pressure to increase the pace of their digital transformation initiatives, were active in venture deals, participating in $21 billion in investment on over 600 deals. They did that under the realization that it was quicker to do so by partnering with, investing in, or acquiring fintechs.
There were a number of significant transactions in Switzerland. At the end of June, for example, Deutsche Boerse bought Crypto Finance AG.
Gold Raining Down on Crypto Scene
For the German firm, the deal represents the chance to expand its offering of digital assets with a direct entry point, including post-trade services such as custody. Worldwide, investments in blockchain and cryptocurrencies totaled $8.7 billion, or more than double that of a year earlier.
Although cryptocurrencies continue to enjoy niche popularity as investments, they are by no means yet a standardized form of payment or a significant component of payment traffic. That space was still taken up by investment in payment startups, which saw $19 billion in investments, notably led by the first half $2.4 billion US-based SoFi's SPAC merger. The Swedish shopping app Klarna, active in Switzerland, benefited from two venture capital funding rounds totaling $1.9 billion.
The Time of the Super App Has Arrived
All that money sloshing around has allowed the players to think big. KPMG is expecting a consolidation in the second half between the largest fintech providers as well as the continuation of a trend towards "super apps" that provide entire ecosystems of services and a broader range of services. European neo-banks, in the meantime, which achieved critical mass with payment services, are currently partnering as equals with established US banks.
Not to be forgotten is insurtech, which aims to digitalize the insurance industry. It received $7.1 billion in investments, including Switzerland's Insurtech WeFox (German only) which got $650 million in funding last June.
Although the holding organization is still here, WeFox's operations are based in Berlin and the investments it received in the last rounds of funding reflect its international reach. Zug-based asset manager Partners Group was an investor as was Lightrock, the venture capital unit of Liechtenstein Bank LGT, and Mubadala, the United Arab Emirates sovereign investment fund.
Google Links Up With Major Banks
In the meantime, financial institutions are increasingly finding themselves as junior partners. Google, for example, in trying to push its mobile banking app, has partnered up with Citigroup, BBVA und Bank of Montreal.
Regional Breakdown
The US continued saw $42.1 billion in investment, with venture capital investment surging to $25 billion. Big deals in the first half included Robinhood, which received $3.4 billion in finding.
Across the Americas, funding reached $54.1 billion. Europe followed with $39 billion in investments, followed by Asia, which recovered to $7.5 billion across 467 deal transactions, up from 2020's $4.7 billion and 357 deals.
