The Covid-19 disruptions have given added push to the development of digital ecosystem in the country as is evident from increased investor activity in the fintech sector despite the challenges posed by the pandemic.
According to KPMG’s Pulse of Fintech H1’21 report, disruptions have turned into opportunity for the fintech sector with India attracting $2 billion in fintech investment in January-June period of 2021.
The progress of fintech investment this year has been phenomenal given that investment remained at $2.7 billion in the full year 2020 which was also the second highest amount ever next to 2019’s peak of $3.5 billion.
The attractiveness of country’s fintech sector for investors has been focused around digital payments followed by insurtech, several of whom raised mid-sized VC or PE funding rounds in H1, 2021.
According to KPMG’s bi-annual report, early fintech leaders in India have continued to expand their business models into adjacencies in order to bring their customers more value, such as payments players acquiring insurtechs.
“Fintech valuations remained very high in H1’21 as investors continued to see the space as attractive and well-performing. This likely drove the explosion of unicorn births in the first half of 2021,” the report added.
“Exits in India are going to increase, both in terms of IPOs and in terms of acquisitions. On the M&A front, fintechs could be targeted by banks, larger fintechs or even a fintech services conglomerate. Over the next 12 months, we expect leading fintech unicorns trying to tap into the strong capital market by looking at an IPO. Banks are also keen to partner with Fintechs especially Neo Banks and Wealthtech platforms,” said Sanjay Doshi, Partner and Head – Financial Services Advisory, KPMG in India.
At the global level, fintech investment reached $98 billion across 2,456 deals in H1’21 – far outpacing last year’s annual total of $121.5 billion across 3,520 deals.
Total fintech investment in the Americas was very robust with over $51 billion in investment across 1,188 deals.
The EMEA (Europe, Middle East, and Africa) region saw $39.1 billion in fintech investment in H1’21. Also, Fintech investment in the Asia-Pacific region continued at a more moderate pace, reaching $7.5 billion across 467 deals, compared to $13.4 billion across 714 deals during all of 2020.
M&A deals continued at a very healthy pace, accounting for $40.7 billion across 353 deals in H1’21, compared to $74 billion across 502 deals during all of 2020, said the report.
Late-stage venture valuations more than doubled year-over-year, with global median pre-money valuations for late stage deals rising from $135 million in 2020 to $325 million at the end of H1’21. PE firms embraced the fintech space in H1’21, contributing $5 billion in investment to fintech – surpassing the previous annual high of $4.7 billion seen in 2018, said the report.
Looking forward to H2’21, the report said, total fintech investment is expected to remain very robust in most regions of the world. 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 cyber attacks and ransomware, cyber security solutions will likely also be high on the radar of investors.