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Singapore’s fintech industry hits 3 year deal volume high

Singapore’s fintech industry has proven resilient with deal numbers for the first half of 2021 (1H 2021) skyrocketing to its year on year highest in three years (since 1H 2018). A total of 72 deals amounting to US$614.2m were transacted for Singapore fintechs from January to June this year - this is a 22% increase from 59 deals in 1H 2020 and 50% than the 48 deals in 1H 2019, according to data from the KPMG Pulse of FinTech Report 1H’21. Dry powder cash reserves, increasing diversification in hubs and subsectors, and strong activity across the world contributed to the record start to 2021.

Fintech investments boosted as corporates scramble to digitally transform

Under pressure to increase the velocity of their digital transformation and to enhance their digital capabilities, corporates have been particularly active in venture deals. They participated in close to US$21bn in investment over nearly 600 deals globally, with many realising it is quicker to achieve transformation outcomes by partnering with, investing in, or acquiring fintechs.

Hence, Singapore’s strong showing comes alongside a pick-up in fintech investments in the Asia-Pacific region for mergers and acquisitions (M&A), venture capital (VC) and private equity (PE), on top of deals activity in the first half of the year. After falling to US$4.7bn across 357 deals in 2H 2020, investment amount in the Asia-Pacific soared to US$7.5bn across 467 deals in 1H 2021 -  largely driven by venture capital activity. India led the way with US$2bn in total fintech investment, followed by China at US$1.3bn, Australia at US$900m, while Singapore is not far off at US$614m.  

Singapore fintechs transacting smaller deals now but SPACs may help push valuations

While the number of deals transacted has certainly gone up, Singapore fintech firms are transacting smaller value deals compared to last year. Investors are still willing to broker deals at strong valuations for companies, but not to quite the same extent as they did in the past. Transactions in 1H 2021 for Singapore fintechs totalled US$614.2m, which is half of 1H 2020’s total deal value of US$1.02bn. A large part of 1H 2020’s total deal value had been from the US$856m deal scored by Singapore-based company, Grab, in that period. That said, 1H 2021’s showing for Singapore is still an improvement from two years back - the deal value is double that of 1H 2019’s US$302.6m.

The smaller sized deals are in part due to pulling back in financing from corporates and their venture arms year on year, given the degree of consolidation and emergence of clear category leaders across countries and regions. While corporates and their venture arms are still engaging in a decent number of rounds, these deals are smaller in size because the corporates are no longer joining in the mega-rounds of some of the largest companies. This is since clear category leaders by segment or region or both tend to be large and may not have the need to raise further capital; they may even have gone public already. Consequently, there will also not be as many start-ups within that specific segment immediately due to the incumbents that are formidable competition. Hence there has been a year on year downward trend of investment figures by corporates and their venture arms in Asia-Pacific. They invested US$24.9bn in fintechs in 2018, compared to US$10.3bn in 2019 and US$7.9bn in 2020. In 1H 2021, just US$2.8bn was invested.

The explosion of US-based special purpose acquisition companies (SPACs) in recent months may help push valuations for the Singapore fintech landscape. Start-ups, including mature fintechs, in the Asia-Pacific region and hence also Singapore are expected to see more interest from US-based SPACs over the next six months. A case in point is Singapore-based super-app company Grab which announced the largest SPAC merger ever in 1H 2021. Once finalised in 2H 2021, its US$40bn deal with US-based Altimeter Growth Corp is expected to set the stage for Singapore’s fintech investments to end the year on a high.

Platform players with strong fintech offerings continue to be very strong in the Asia-Pacific region, with many working to build their breadth, reach and market share. Aside from Grab, Indonesia-based Gojek has also raised US$300m in 1H 2021 and announced a merger with eCommerce platform Tokopedia for US$18bn to create the GoTo Group.

"Fintech is an incredibly hot area of investment right now - and that’s not expected to change anytime soon given the increasing number of fintech hubs attracting investments and growing deal sizes and valuations," said Anton Ruddenklau, KPMG’s Global Fintech co-lead. "As we head into H2’21, we anticipate more consolidation will occur, particularly in mature fintech areas as fintechs look to become the dominant market player either regionally or globally."

Payments remain the top choice for fintech investors as solutions in this space diversify

Fintech investments in the payments space have kept up momentum, retaining the top spot for investors' wallets globally at US$19bn for 1H 2021 - compared to $27.8bn for the entire year of 2020. Deal values for payments globally exceeded that of other fintech segments in 1H 2021 such as blockchain and cryptocurrency (US$8.7bn), insurtech (US$7.1bn), regtech (US$6.6bn), cybersecurity (US$3.7bn) and wealthtech (US$1.4bn).

Among the fintech investments into payments in Asia-Pacific for 1H 2021, 'buy now pay later' was one of the fastest-growing sub-sectors in the payments space. The strong interest of investors in the payments space has been attributed in part to an increasingly diversified payments space, which is now going beyond person-to-person and bill payments. Embedded finance solutions have become increasingly popular with payments embedded into offerings, retail apps and ecosystem platforms. Also emerging in the payments space are disbursements which are being looked at both by insurers for claims processing and by governments as part of disaster recovery.

Many non-financial companies (for example, IKEA) are also broadening their reach into payments and financial services through stakes in companies and partnerships. While there have not yet been mega M&A deals for payments in 1H 2021, M&A activity is building up this period with opportunities for companies to strategically acquire payment fintech firms or to expand market share in this space.

Cryptocurrency and blockchain is a space to watch

Cryptocurrency and blockchain is another space to watch. Global investments in these fintechs in 1H 2021 totalled US$8.7bn, which is more than double the entire 2020's investment figure of US$4.3bn. In 1H 2021, a significant amount of institutional money flowed into the crypto space, highlighting the broadening of the investor base. Investor awareness and knowledge of the sector is growing in crypto assets, as well as the operational and procedural side of crypto - from custody and storage to storekeeping and the competitiveness and maturity of service providers. VC investments have also been very strong in the blockchain and crypto space globally. Numerous companies raised over US$100m funding rounds, including BlockFi (US$350m), Paxos (US$300m), (US$300m) and Bitso (US$250m).

Cryptocurrency-focused regtech has also been a big winner in 1H 2021. With more investors focusing on cryptocurrency trading, there has been a rise in demand for safe and secure access to investments. The growth of digital customers and transactions during Covid-19 has also driven a major increase in demand for regtech solutions that can identify and address incidents such as fraud accurately. As such, global regtech investments for 1H 2021 hit US$6.6bn, as compared to US$10.4bn for the entire 2020. 

The rise of ransomware and other cyber-attacks has necessitated an increasing focus on companies to quickly detect malicious attackers. This is driving significant investment in the artificial intelligence (AI) space and pushing cybersecurity companies to refocus their efforts on automation for cybersecurity, as well as managing and responding to incidents. Investments into cybersecurity fintechs grew dramatically, coming in at US$3.7bn of investments in 1H 2021 as compared to US$2.2bn for the entire year of 2020.

Global investment in wealthtech also boomed in 1H 2021, coming in at US$1.4bn - an amount surpassing the investment of $0.8bn for the entire year of 2020. Corporates have continued to play a key role in wealthtech investment, with a number of well-established players (for example, JP Morgan) making investments into or acquiring wealthtechs in recent quarters. Investing services have matured significantly and gained more credibility in the market. This is with the exception of robo-advisory which is still in its infancy - few investors are putting faith in robot-driven advice over human experience.

Finally, insurtech which attracted global investments of US$7.1bn in 1H 2021 compared to US$16.5bn for the entire 2020, is seeing the lion's share of investments coming from the US. Corporates are making outright acquisitions to gain capabilities, while big techs such as Google have focused on forging partnerships to embed insurtech offerings into their platforms and products.

Strong outlook ahead

Looking forward to 2H 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.

About the report

The KPMG Pulse of FinTech Report is a bi-annual report analysing global and regional fintech investments for venture capital, private equity and mergers & acquisitions. It incorporates key trends and developments as well as views from experts on fintech and financial services. The underlying Dataset is provided by PitchBook Data, Inc and only completed transactions are included. Due to the private nature of many of the transactions, the Dataset is based on industry-leading practice research methodology and information related to the period being analysed.

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