Insights on Financial Services M&A March 2021

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Pulse of Fintech H2’20

As digitalization of the fintech industry accelerated in the second half of 2020, fintech investment rebounded as investors and fintechs adapted to the new normal and identified opportunities arising from the COVID-19 environment. In the second half of 2020, fintech investment more than doubled from the first half of the year, aided by higher M&A activity in the US. US deals accounted for nine of the top ten global fintech M&A deals in 2020. H2’20 revealed key trends in the fintech industry which will be vital for industry players to understand as they explore deal opportunities. These industry trends include increased demand for e-payments and contactless banking, rise of e-commerce platforms, focus on accelerated digital transformation, growth through M&A, and increased attention from regulators, among others.

Overall, the payments sector led fintech investment in 2020. Although a lack of multibillion dollar deals caused an overall decline in payments investment compared to 2019, payments deal volume remained high in 2020 (404 deals, compared to 422 in 2019)¹, demonstrating this sector’s attractiveness to investors. In 2021, investors in the payments sector may see an increased focus on ‘buy now, pay later’ services and a healthy market for IPO exits of payment firms. Insurtech deals declined from 425 in 2019 to 287 in 2020¹; however, total investment increased, in part driven by large venture capital funding rounds in H2’20. In 2021, insurtechs will likely continue to seek ways to accelerate digital transformation efforts through acquisition. While these two sectors led the industry in total investment, regtech, wealthtech, blockchain/cryptocurrency, and cybersecurity also demonstrated positive signs for growth.

H2’20 provided better insight into the direction of the fintech industry, as companies adopted new strategies to evolve in a new reality. In 2021, we expect continued investment in the payments space, an increase in fintech IPOs, and ongoing rebound of M&A activity. 

1. Pulse of Fintech H2’20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 31 December 2020.