KPMG: Global fintech investment remains robust

KPMG said the expanding definition of fintech and its increasing reach and interconnectivity helped keep investment robust, despite the global economic and trade challenges that hindered growth

Global fintech investment in 2019 fell just shy of 2018’s record with $135.7 billion invested across 2,693 deals, KPMG has reported.

In its biannual Pulse of Fintech report covering the second half of 2019, KPMG said diversity characterised the period—with fintechs and investment expanding across product, sector and geographic borders.

KPMG said the expanding definition of fintech and its increasing reach and interconnectivity helped keep investment robust, despite the global economic and trade challenges that hindered growth in 2019, including concerns over Brexit and ongoing trade tensions between China and the US.

Despite these concerns, cross-border transactions remained high with $54.2 billion in cross-border merger and acquisition deal value across 138 deals.

Many niche areas of fintech continued to grow and evolve throughout 2019, with proptech investment growing from $1.9 billion in 2018 to a record $2.6 billion in 2019, while fintech-focused cyber security investment more than doubled from $316.9 million to $646.2 million.

Blockchain and cryptocurrency investment continued to fluctuate, falling from $6.3 billion to $4.7 billion year-over-year, although Facebook’s announcement of Libra and the People’s Bank of China’s announcement of accelerated research and experimentation on digital currency and electronic payments have helped breathe new life into the space.

Anton Ruddenklau, global co-leader of fintech at KPMG International, commented: “Over the past year, the lines have really started to blur between financial services and non-financial services—with fintech companies helping to bridge the gap.”

“It’s a trend that will only continue into 2020. Just look at how the big tech giants are working with both traditional financial institutions and fintechs in order to seamlessly integrate financial services within their ecosystems, and at how the larger fintechs and financial institutions are looking at ways to broaden their offerings into adjacent areas.”

Key highlights of 2019

• Global fintech investment fell short of 2018’s record year, with $137.5 billion invested in 2019 compared to $141 billion in 2018.

• Global fintech mergers and acquisitions rose from $91 billion in 2019 to a record-high of $97.3 billion in 2019, despite a strong drop in the number of deals from 622 to 426.

• Global corporate venture capital investment participation rose during every quarter of 2019, leading to $16.7 billion in total annual venture capital invested with corporate involvement

• Corporate venture capital-related deal volume was also robust, with 553 deals over 2019, including 166 in Q319—the second-highest quarter ever in terms of corporate venture capital fintech deals volume after Q218.

• Cross-border mergers and acquisitions held strong at $54.2 billion in deal value—despite ongoing global trade tension.

• The number of fintech deals from global tech giants—including Alibaba Group, Alphabet, Apple, Baidu, IBM, Microsoft and Tencent—increased for the fifth straight year, with $3.5 billion invested across 46 deals in 2019.

• Cyber security-related fintech investment more than doubled year-over-year, from $316.9 million to $646.2 million.

• Proptech investment rose to a record high of $2.6 billion in 2019 from $1.9 billion in 2018.

In 2020, the lines are going to continue to blur between financial services and non-financial services, according to KPMG, with big techs such as Alibaba, Tencent and Google continuing to look for ways to integrate financial services within their ecosystem of offerings to their customers.

Ian Pollari, global co-leader of fintech at KPMG International, explained: “2020 is going to be an exciting and pivotal year for fintech, particularly as we start to see the impact of the digital banking licensees in Hong Kong, Australia and Singapore launching and endeavouring to scale, as well as other markets following suit.”

“In addition, a number of companies from outside of financial services are working to get into parts of the financial services value chain—either directly or through partnerships—and they’re going to blur the lines of financial services even more. As a result, we expect to see bolder responses from incumbent financial institutions in terms of partnerships, as well as strategic investments and M&A.”

KPMG’s key predictions for 2020

• The big tech giants such as Alphabet, Alibaba and Tencent will increase their focus on the fintech space, both working to increase their reach into developing markets and to increase the value and seamless of their ecosystems to their customers.

• Maturing fintechs and challenger banks will continue to expand the breadth of their service offerings beyond their initial niche focus areas and make strategic moves across international borders.

• The unbundling of financial products will begin to reverse course as consumers increasingly seek a primary interface to manage all of their financial affairs on a holistic level.

• Cyber security-focused fintechs will become more attractive as traditional financial institutions shift from building to buying cyber solutions, particularly in areas such as fraud, security and identity management.

• Consolidation is going to increase, with bigger and bolder merger and acquisition deals becoming the norm in more mature fintech sub-sectors.

• Building on the momentum of Hong Kong and Australia, more countries in the Asia Pacific region will develop digital banking regimes and use digital banking licences to guide digital bank efforts.

• The focus on open data opportunities will move beyond banking and into other aspects of the financial services industry.

Image: KPMG

Mark Dugdale