India attracted $2.7 billion in fintech investment in 2020, the second highest amount ever next to 2019’s peak of $3.5 billion, according to the Pulse of Fintech H2’20 (second half of 2020), a bi-annual report on global fintech investment trends published by KPMG.
While a majority of India’s fintech investment came early in the year, the second half of 2020 (July to December) saw merchant platform Pine Labs and Razorpay each raised $100 million.
Payments remained the hottest area of investment, followed by insurtech and wealthtech. Fintech investors adjusted their strategies in the second half of 2020, moving away from both early stage companies and lending-based businesses and towards later stage companies; investors also focused more on profitability.
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.
The report also said that to boost digital transactions and the fintech industry, the government has proposed significant support in their recent budget announcements, which include a scheme to develop, promote and accelerate digital payments, following a sharp growth in online and contactless payments during the COVID-19 led lockdown months.
Also, a fintech hub at Gujarat International Finance Tec-City, will be set up to encourage and develop innovative financial technology services and products.
“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,” said KPMG in India Partner and Head of Financial Services Advisory Sanjay Doshi.
“That is going to be a big growth area for investment here in India -banking-as-a-service platforms,” he added.
Overall global fintech funding across M&A, PE and VC was $105 billion across 2,861 deals in 2020: the third highest level of investment in fintech ever. With the exception of M&A – which saw deal value drop over 50% (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.
Following a short COVID-19 driven pause in the first half of 2020, fintech investment bounced back strongly in the second half, more than doubling from January-June 2020 ($33.4 billion) to July-December 2020 ($71.9 billion). The US was the dominant benefactor for fintech investment in 2020, while the payments space continued to dominate investment from a sector perspective, the report said.
Unicorn births span the globe
In H2’20, fintech unicorns were born in the US (Next Insurance, Chainalysis, Better.com, Forter, and others), China (Waterdrop), Canada (Wealthsimple), India (Razorpay), the Netherlands (Mollie), and Brazil (Creditas). Two countries also saw their first fintech unicorns: Saudi Arabia (STC Pay) and Uruguay (dLocal). The diversity of these unicorns is a testament to the rapidly evolving global fintech ecosystem, the report added.