Australian fintech investment rebounds: KPMG Pulse of Fintech

According to the KPMG Pulse of Fintech H2’21 – a bi-annual report published by KPMG highlighting global fintech investment trends – Australia fintech saw a rebound in investment activity in 2021 with US$1.5 billion in fintech M&A, PE and VC over the second half of the year. Total investment for the year reached in excess of US$2.5 billion, nearly equaling the pre-COVID highs seen in 2019 (US$2.6 billion) and up from US$2.2 billion in 2020.

Investment took place across a wide range of sub-sectors, with notable investment continuing in the payments space through Airwallex and Till Payments who raised a total of AU$415 million and AU$125 million respectively over the period. Neobank activity also continued off the back of the acquisition of 86 400 by NAB in H1’21, with Judo Bank successful listing on the ASX and Alex Bank finalising an AU$20 million investment on the back of securing its restricted banking license (RADI).

Dan Teper, KPMG Australia Head of Fintech said, “The fintech sector continues to mature and rebound in Australia – investments are taking place across a range of sub-sectors and from a broad set of investor groups. As well as the increase in overall investment in 2021, we also saw a significant shift in deal volume, with 134 deals recorded across the year, compared to 84 in 2020 and 72 in 2019.”

“This would indicate that we are continuing to see investment in start-up and scale-up businesses, as well as significant M&A activity for more mature players in the space. We expect this momentum to continue and predict that 2022 will be a record year for fintech investment in Australia,” he added.

Whilst corporate investment in Australia was less prominent than H1’21, strategic M&A remains a priority, with Latitude acquiring digital consumer lender Symple Loans and deals announced for the acquisition of Afterpay by US-headquartered Block (formerly Square) and Society One by MoneyMe. While both were announced during 2021, they are only expected to complete in H1’22 and as such were not included in these figures.

Globally, total global fintech funding across M&A, PE and VC reached US$210 billion across a record 5,684 deals in 2021. Fintech funding in H2’21 accounted for US$101 billion of this total – down slightly next to H1’21’s US$109 billion.

The largest fintech deals of H2’21 included the US$9.2 billion acquisition of Denmark-based payments processor Nets by Italy-based Nexi, the US$3.75 billion merger of fintech cloud platform company Calypso Technology and regtech AxiomSL to form Adenza in the US, and the US$2.7 billion acquisition of Japan-based Paidy by PayPal. H2’21 also saw 4 VC funding rounds over $1 billion, including a US$2 billion raise by US-based Generate, a US$1.1 billion raise by Brazil-based Nubank, a US$1.1 billion raise by US-based Chime, and a US$1 billion raise by Bahamas-based FTX.

Payments continued to attract the most funding among fintech subsectors, accounting for US$51.7 billion in investment globally in 2021 – up from $29.1 billion in 2020. A continued surge in interest in areas like ‘buy now, pay later’, embedded banking, and open banking aligned solutions has helped keep the payments space very robust. Blockchain and crypto was also a very hot sector, attracting a record US$30.2 billion in investment – up from US$5.5 billion in 2020 and more than three times the previous record of US$8.2 billion seen in 2018. Cybersecurity (US$4.85 billion) and Wealthtech (US$1.62 billion) also saw record-levels of investment.

“2021 has been an incredibly strong year for the fintech market globally, with the number of deals soaring to record highs across the board,” said Anton Ruddenklau, Global Fintech Leader, KPMG International. “We’re seeing an incredible amount of interest in all manner of fintech companies, with record funding in areas like blockchain and crypto, cybersecurity, and wealthtech. While payments remains a significant driver of fintech activity, the sector is broadening every day.”

2021 Key Global Highlights

• Global fintech investment was US$210 billion across a record 5,684 deals in 2021 – up from US$125 billion across 3,674 deals in 2021.
• Payments remained the hottest area of fintech investment in 2021, with US$51.7 billion in investment globally.
• Record levels of investment were seen in blockchain and crypto (US$30.2 billion), cybersecurity (US$4.85 billion) and wealthtech (US$1.62 billion) in 2021.
• Other fintech areas also saw robust funding in 2021, including insurtech (US$14.4 billion), regtech (US$9.9 billion).
• Cross-border fintech M&A deal value more than tripled year-over-year – to $36.2 billion. Total fintech-focused M&A deal value rose from US$76 billion in 2020 to US$83.1 billion in 2021.
• PE funding to fintechs more than doubled from its previous high – with US$12.2 billion in investment in 2021 compared to a peak of US$5.2 billion in 2018.
• VC investment in fintech globally more than doubled year-over-year – from US$46 billion in 2020 to a record US$115 billion investment in 2021. Median VC deal sizes grew significantly for all deal stages between 2020 and 2021, including Angel and Seed US$1.4 million to US$2.2 million), Early Stage (US$4.6 million to US$7 million), and Late Stage (US$12.7 million to US$24.6 million).
• Total fintech investment in the Americas reached US$105 billion in 2021, including a record US$64.5 billion in VC funding. The US accounted for US$88 billion of total funding and US$52.7 billion in VC funding. EMEA saw US$77 billion in fintech investment in 2021, including a record US$31.1 billion in VC funding. Fintech investment in the Asia-Pacific region almost doubled – from US$14.7 billion in 2020 to US$27.5 billion in 2021.
• Corporate VC investment in fintech was incredibly robust in 2021 at US$50 billion, with both the Americas (US$29.7 billion) and EMEA (US$11.3 billion) seeing record levels of investment.

Crypto and blockchain space sees biggest surge in 2021 – with US$30 billion in investment

Global investment in the crypto and blockchain space rose dramatically from US$5.4 billion in 2020 to a record high of US$30 billion in 2021, while the number of deals rose from 627 to 1,332 over the same period. The sector also saw numerous large deals, including the US$1 billion raise by Bahamas-based FTX, a US$767 million raise by US-based NYDIG, and a US$750 million raise by Celsius Network. The surging investment and deal activity reflects growing recognition for the potential role of crypto and its underlying technologies in modern financial systems.

Both cybersecurity and wealthtech also reached record high levels of investment in 2021, with US$4.85 billion and US$1.62 billion respectively.

Cross-border M&A sees strong rebound with US$32.2 billion in deal value

After falling to a seven-year low of US$10.7 billion in 2020, cross-border fintech M&A deal value more than tripled year-over-year to US$36.2 billion in 2021. The number of cross-border M&A deals also reached a record high of 275 deals during the year. Both H1’21 and H2’21 saw robust activity. During H1’21, the London Stock Exchange acquired US-based Refinitiv for US$14.8 billion and US-based Nasdaq acquiring Canada-based Verafin for US$2.7 billion, while in H2’21, Italy-based Nexi acquired Denmark-based Nets for US$9.2 billion and PayPal acquired Japan-based Paidy for US$2.7 billion.

VC funding in the Americas more than doubles to record US$64.5 billion

Total fintech investment in the Americas rose from US$83.5 billion in 2020 to US$105 billion in 2021 (US$53.7 billion in H2’21). VC funding accounted for US$64.5 billion of 2021 investment – more than double 2020’s record US$24.8 billion. The US continued to attract the largest portion of fintech investment in the Americas, accounting for US$88 million in total investment during 2021 (US$44.4 billion in H2’21). In the Americas more broadly, total fintech investment soared in 2021, with investment rising to record highs in Canada (US$7 billion) and Brazil (US$5.2 billion).

Europe sees record-breaking VC investment even as M&A dries up

Overall fintech investment in the EMEA region rose to a record US$77 billion in 2021 (U$29.8 billion in H2’21). VC investment in EMEA also reached a new high of US$31.1 billion, including a US$900 million raise by Germany-based N26 and an US$800 million raise by UK-based Revolut during H2’21. Fintech investment was incredibly robust across the region, with record levels of investment in the Nordic region (US$18.5 billion), Germany (US$5.4 billion), Ireland (US$1.6 billion), Africa (US$1.8 billion), and Israel (US$900 million).

Total fintech investment in the Asia-Pacific region grows year-over-year to US$27.5 billion

After dropping to US$14.7 billion in 2020, fintech funding in the Asia-Pacific region grew to US$27.5 billion in 2021 ($17.4 billion in H2’21). VC funding also bounced back – rising from US$11.5 billion in 2020 to US$19.6 billion in 2021. India (US$7.2 billion) and South Korea (US$3 billion) both saw record high fintech investment during 2021, while investment in Singapore (US$4 billion) and Australia (US$2.6 billion) remained very robust.

More growth on the horizon, including significant M&A

Heading into 2022, fintech investment is expected to remain very robust, with activity growing in less developed fintech markets, including Africa, Southeast Asia, and Latin America. M&A activity is also expected to rise, with deal values growing as both corporates and fintechs look to grow and build scale.  There is also expected to be growing interest in fintech-focused ESG solutions and banking replacements able to address the need for modernization of core banking platforms. There will also be an increasing number of fintechs looking brand themselves as data companies rather than simply fintechs.

“Cryptocurrencies and blockchain are expected to remain very hot areas of investment in 2022, with more crypto firms looking to regulators to provide clear guidance on activities in order to help foster and develop the space,” said Anton Ruddenklau, Global Fintech Leader, KPMG International. “Given how many banks are beginning to see the major limitations inherent in their legacy architecture and technologies, there will likely also be a surge in investment into banking replacements able to help them rethink core banking services.”