The pandemic caused a slowdown in fintech financing in India, with overall funding falling by 23% to $2.7 billion in 2020 from $3.5 billion in the previous year, KPMG said in its Pulse of Fintech report for the second half of last year. In the course of the last year, banks and insurance players enhanced their digital capabilities due to the pandemic, as a result of which a bulk of last years’ investments went to fintechs in the payments, insurance and wealth space.
Globally, the overall deal value fell to $105.3 billion in 2020 from $168 billion in 2019 and $145 billion in 2018, while the total number of deals fell to 2,861 in 2020 from 3,472 in 2019 and 3,712 in 2018, the report said. Among the top deals in India last year, included: Pine Labs’ $300 million in January, Navi Techologies’ $397.9 million in July and Razorpay’ $100 million Series D round in October.
“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.
Over deal activity in the first two quarters of 2020 (calendar) was considerably higher than in the same period of 2020, but in the wake of the pandemic much of the investment activity dried up by the second half of the year. In comparison, the second of 2019 was the hottest period for Indian fintech investments since early 2017.
Significant growth in blockchain and crypto-assets
Overall deal activity in the blockchain and crypto-currency space stood at $2.8 billion (458 deals) in 2020, which is lower from $4.7 billion (598) in 2019 and $6.9 billion (827) in 2018. Yet, the overall market has grown with new players, products and partnerships with the formal financial system, whether it is banks or asset manageers offering crypto-asset investment products, portfolios, exchange traded funds and other option, the report said. It added that with stablecoins gaining attention and acceptance across jurisdictions, cross-border payments space will become more efficient as banks and companies use such technologies to transaction
“The virtual asset industry grew significantly in 2020, not only through the creation of new products and asset classes, but also through the participation of a broader range of market players not weighed down by legacy processes and infrastructure. These players introduced new channels and technologies able to address the needs of more sophisticated investors,” —KPMG Pulse of Fintech H2 FY20
The report says that in the coming year we could see the development of more Central Bank-backed Digital Currencies, more institutional investor investments in blockchain and cryptos, while crypto and blockchain firms pay more attention to compliance, risk management and investigation aspects of their operations.
COVID-19 boosted InsurTech adoption
Overall deal activity in the Insurance Technology or InsurTech space stood at $14.5 billion (287) in 2020, slightly higher than in 2019 at $14.3 billion (425). However, the total InsurTech funding in 2020 is nearly half of what it was two years ago; $28.5 billion (454) in 2018. The report said that many corporates invested in insurtech continued in 2020 as incumbent insurers looked to quickly progress their digital capabilities in the wake of the pandemic.
“Maturing fintech companies attracting larger rounds combined with incumbent carriers recognizing the need to accelerate their digital transformation efforts helped buoy insurtech investment. During 2020, many of the largest insurtech funding rounds focused on challenger insurance brands, rather than on software players. Investments in alternative full-stack providers really took off compared to previous years, with many providers now working to achieve scale”—KPMG Pulse of Fintech H2 FY20
Big year for RegTech
Overall deal activity in the Regulation Technology or RegTech space stood at $10.6 billion (191) in 2020, the highest year of funding till date. In 2019, RegTech players raised $3.5 billion (203).
“The pandemic stressed the need for financial institutions to address structural challenges and make risk management processes more efficient and proactive,” the report said, adding that with the increasing importance of data privacy, RegTech solutions on Know-Your-Customer norms and and transparency issues will be in high demand”—KPMG Pulse of Fintech H2 FY20
There will also be a movement towards new risk models incorporationg climate change risk, particularly oneEnvironmental, social and corporate governance (ESG), it said.
Expectations for the future
- Merger and acquisition activity will increase
- Mature fintechs will look to list on stock exchanges
- Large payment players will look to consolidate globally
- Crypto-assets and digital ledger technologies will become mainstream
- Embedded finance such as buy-now-pay-later credit products or embedded insurance products will grow significantly
- Bank-as-a-Service, merchant partnerships and open banking solutions will help grow access to credit, insurance and other financial services
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