Fintech is one of the promising sectors drawing venture capitalists and investors looking to get a piece of Australia’s multi-billion dollar market opportunity for startups.
According to KPMG’s Pulse of Fintech H2‘21, Australia fintech saw a comeback in investment activity in 2021, with US$1.5 billion in fintech mergers and acquisitions (M&A), private equity (PE), and VC activity during the second half of the year. The overall investment for the year was more than $2.5 billion.
The sector has always piqued venture capitalists’ interest in investing in startups. In recent years, increased demand for technology-enabled fintech products has been the primary driver of investor confidence in fintech businesses.
These figures are nearly equal to the pre-COVID highs of 2019 (US$2.6 billion) and are up from US$2.2 billion in 2020. Investment took place in a range of sub-sectors, with notable investment continuing in the payments space through Airwallex and Till Payments, which raised a total of AU$415 million and AU$125 million, respectively during the period.
Following NAB’s acquisition of 86 400 in H1’21, Neobank operations continued, with Judo Bank successfully launching on the ASX and Alex Bank finalising an AU$20 million investment following its restricted banking licence (RADI).
Dan Teper, KPMG Australia Head of Fintech, said that the fintech sector in Australia is continuing to expand and revive, with investments coming from a variety of sub-sectors and 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 startup 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 the first half of 2021, 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 the first half of 2022 and, as such, were not included in these figures.
Global fintech investment tops $210 bn in 2021
Total global fintech funding (including mergers and acquisitions, private equity, and venture capital) surpassed $210 billion in 2021, with a record 5,684 transactions, up from $125 billion across 3,674 transactions in 2020.
Fintech funding accounted for US$101 billion of this total in H2’21, a modest decrease from H1’21’s US$109 billion.
Biggest deals of 2021
The largest fintech deals in H2’21, according to the report, included the US$9.2 billion acquisition of Denmark-based payments processor Nets by Italy-based Nexi, the US$3.75 billion mergers of fintech cloud platform company Calypso Technology and Regtech AxiomSL to form Adenza in the US, and PayPal’s US$2.7 billion acquisition of Japan-based Paidy.
The second half of 2021 also witnessed four VC fundraising rounds worth more than $1 billion, including a US$2 billion round by Generate in the United States, a US$1.1 billion raised by Nubank in Brazil, a US$1.1 billion raised by Chime in the United States, and a US$1 billion raised by FTX in the Bahamas.
Payments received the most funding among fintech subsectors, accounting for $51.7 billion in global investment in 2021, up from $29.1 billion in 2020. A continued surge in interest in areas such as ‘buy now, pay later,’ embedded banking, and open banking aligned solutions have contributed to the remaining robust payments market.
Blockchain and cryptocurrency were also very hot sectors, 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 in 2018. Investment in cybersecurity (US$4.85 billion) and wealth tech (US$1.62 billion) also reached new highs.
“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 see an incredible amount of interest in all manner of fintech companies, with record funding in areas like blockchain and crypto, cybersecurity, and wealth tech. While payments remain a significant driver of fintech activity, the sector is broadening every day.”
Web3 space sees the biggest surge in 2021
The report stated that global investment in the cryptocurrency and blockchain field increased drastically from US$5.4 billion in 2020 to a record high of US$30 billion in 2021, while the number of transactions increased from 627 to 1,332 during the same year.
Numerous big transactions occurred in the industry, including a US$1 billion raised by Bahamas-based FTX, a US$767 million raise by US-based NYDIG, and a US$750 million raise by Celsius Network.
The increased investment and deal activity demonstrate a rising realisation of crypto and its underlying technologies’ potential significance in modern financial systems. Both cybersecurity and wealth tech investment reached new highs in 2021, with US$4.85 billion and US$1.62 billion, respectively.
Fintech investment in APAC grows year-over-year
After dropping to $14.7 billion in 2020, Asia-Pacific fintech funding increased to $27.5 billion in 2021 ($17.4 billion in H2’21). VC financing has also increased, growing from $11.5 billion in 2020 to $19.6 billion in 2021.
During 2021, India (US$7.2 billion) and South Korea (US$3 billion) had record high fintech investment, while Singapore (US$4 billion) and Australia (US$2.6 billion) remained quite strong.
Future looking bright for Fintech; more M&A activity expected in 2022
Fintech investment is expected to remain strong in 2022, increasing activity in less developed fintech regions such as Africa, Southeast Asia, and Latin America. M&A activity is also expected to increase, with deal values rising as corporates and fintech seek to scale up.
There is also a growing interest in fintech-focused ESG solutions and banking replacements that can meet core banking platform modernisation requirements. In addition, an increasing number of fintech will seek to position themselves as data companies rather than just fintech.
“Cryptocurrencies and blockchain are expected to remain very hot areas of investment in 2022, with more crypto firms looking to regulators,” Dan Teper added.
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