India attracted $2.7 billion in fintech investment in 2020: KPMG

India attracted $2.7 billion in fintech investment in 2020, the second-highest amount ever after 2019’s record $3.5 billion, according to the Pulse of Fintech H2’20, a bi-annual report on global fintech investment trends published by KPMG.

While the majority of fintech investment was seen early on in the year, merchant platform Pine Labs and Razorpay each raised $100 million in H2 2020.

“Payments remained the hottest area of investment, followed by insurtech and wealthtech,” says the report.

Fintech investors also adjusted their strategies in the second half of the year, shifting focus more to profitability. Investors moved away from both early-stage companies and lending-based businesses and towards later-stage companies, according to the report.

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“Competition in the insurance space started to heat up as incumbent insurers enhanced their digital focus due to Covid-19 and niche payments players like Paytm worked to expand into insurance,” it further added.

Moving forward, one of the major growth areas for fintech is going to be banking as a service platforms.

“Many of the banks in India are now going down the path of digital. They are really looking at tech and fintech companies that can help them move their digital activities forward, either investing in them directly or using them as service providers. That is going to be a big growth area for investment here in India — banking-as-a-service platforms,” said Sanjay Doshi Partner and Head of Financial Services Advisory, KPMG in India

Global fintech investments

In terms of global fintech investments, the overall global fintech funding across mergers & acquisition (M&A), private equity (PE) and venture capital (VC) was $105 billion across 2,861 deals in 2020.

“With the exception of M&A – which saw deal value drop over 50 per cent (from $130 billion in 2019 to $61 billion in 2020) – the overall fintech market proved remarkably resilient in 2020 despite a broad array of uncertainties, from the global pandemic to the US presidential election,” the report said.

Fintech investment bounced back strongly in H2 2020 following a short pause in H1 2020 owing to Covid-19. It more than doubled from $33.4 billion in H1 2020 to $71.9 billion in H2 2020.

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VC investment in fintech globally also increased year-over-year, from $40 billion over 2,834 deals to over $42 billion investment across 2,375 deals. Global investment in cyber security quadrupled – from $500 million in 2019 to over $2 billion in 2020.

“Given the increase in demand for digital payments, contactless payments and e-commerce platforms, fintech investment is expected to remain robust well into 2021. Corporate investment is expected to be particularly strong as incumbent businesses continue to work to accelerate their digital transformation efforts,” the report said.

“In addition to payments and platform models, B2B solutions will likely be a very hot area of investment globally in 2021, including such areas as embedded finance and ‘buy now, pay later’ solutions. Blockchain is also expected to gain traction as blockchain-based solutions and digital asset offerings become more mainstream,” it added.

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