Fintech hits record-breaking VC investment of $98b in first half
Dry powder cash reserves, increasing diversification in hubs and subsectors, and strong activity across the world contributed to the record start to 2021
Fintech has proved to be a hot bet from an investment perspective and both Venture Capitalists (VCs) and startups are reaping the fruits of hard work that was put in to building an ecosystem that suits the needs of the future generations.
Overall, global fintech funding across M&A, PE, and VC deals soared to a new high in H1 2021, 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 $87.1 billion in second half of 2020 to $98 billion in first half of 2021.
Fintech valuations remained very high in first half 2021 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. Under pressure to increase the velocity of their digital transformation and to enhance their digital capabilities, corporates were particularly active in venture deals, participating in close to $21 billion in investment over nearly 600 deals globally, with many realising it’s quicker to do so by partnering with, investing in, or acquiring fintechs.
Looking forward to second half 2021, 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 cyberattacks and ransomware, cybersecurity solutions will likely also be high on the radar of investors.
Dr Ruchi Dana, Parter, Dana Group, said about 40 per cent of US dollars in existence were printed in the last 12 months.
"For long institutions have been investing in inflation-capped assets. With the advancement of technologies, everyone is looking to invest in innovation and digital assets are gaining major traction. Fintech companies have also taken a big part in this as we can anticipate digital currencies to be the new currency, through which IOTs can also transform and be able to eventually even make seamless transactions. Decentralised finance is also disrupting the traditional lending space and several neobanks have emerged as winners, so VC Capital is flowing into fintech and I expect this to continue over the next year.”
The digital bank space got some attention in first half of 2021 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 the first half of 2021.
During second half of 2021, 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, are 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.
"First half of 2021 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 programme aimed at helping early-stage founders build viable products.”
The proof of banks closely working with fintech was evident when Ajman Bank, one of the leading Shariah-compliant banks in the UAE, signed a partnership agreement with Kamel Pay, a fintech to build and implement a highly innovative payments value proposition for businesses and individuals in the UAE.
Kamel Pay provides an EMV-compliant Mastercard prepaid card and a user-friendly digital app to all cardholders with real-time digital account information and the ability to access funds at 40million+ touchpoints globally. The Kamel Pay innovative digital app provides a platform for executing end-to-end financial services such as instant remittances, bill payments, e-commerce purchases, etc.
The solution will be launched shortly in the UAE market with a special preference for Ajman Bank’s existing customers and is expected to roll out in other GCC markets in the next expansion phase of Kamel Pay.
Hussain Al Qemzi, chairman, Kamel Pay, said: “We are excited in partnering with Ajman Bank and launching digital financial services for businesses and individuals across the UAE; via a friendly and secure digital app-based platform. This partnership will enable the much-required financial inclusion for the UAE’s underbanked population through state-of-the-art Kamel Pay digital app offering relevant and affordable financial services for their personal and family needs.”
Magnitt, the leading data platform providing research and insights across emerging venture markets that encompass the Middle East, North Africa, Pakistan, and Turkey, recently launched first half of 2021 reports, which take a deep dive into the fintech, e-commerce, food & beverage, delivery & transport, and healthcare sectors. The report shows that the fintech sector recorded highest investment activity, securing 65 deals valued at $222 million across MENAPT
The first half of 2021 marked the highest amount of fintech funding raised within a period of six months in the Mena region. The UAE and Saudi Arabia accounted for 60 per cent of total Mena funding into fintech during this time.
Bahoshy said fintech was the hero sector in the overall emerging markets, demonstrating the most investment activity to date within the first half of the year.
"Investor appetite has shifted towards bigger opportunities in the financial services space, which put fintech ahead of other industries, such as food & beverage, e-commerce, and delivery and logistics that thrived in previous years," he said.
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