The novel Coronavirus pandemic has put the banking system under stress. There is a need for personalizing digital solutions, a strong capital foundation, and visionary leadership to keep the businesses running.
While much attention has been given to the impact of COVID-19 on the traditional banking sector, there is also a significant impact felt in the Fintech marketplace. The slowdown in funding, drop in the establishment of new Fintech firms and reduced revenues of most of the running organizations are clear indications of this impact.
According to the Pulse of Fintech H1’20, a bi-annual report on global fintech investment trends from KPMG International, overall global Fintech funding dropped by 25.6 billion of investment globally across 1,221 deals during the first half of 2020. Most of this decline is attributed to a sharp drop in M&A investment. M&A accounted for just $4 billion of Fintech investment during half first of 2020 compared to $85.7 billion in half-second of 2019. The stalled M&A is as a result of both a general slowdown in deal activity and investors halting their major deals to re-consider valuation and risks posed by COVID-19.
VC Investment Remains Strong
VC investment remains strong across the globe despite the global uncertainties resulting from the outbreak of Coronavirus. According to the report, the investment could surpass the annual record if the trend recorded in H1’20 continues. VC investment accounted for $20 billion. Americas still account for the largest VC investment, $9.3 billion. Asia comes second with $6.7 billion. Europe, the Middle East, and Africa (EMEA) account for $4 billion.
In the United States, the payment space proves the hottest sector for VC investment. The report indicates that the late-stage deals had a significant contribution to the total VC investment as mature Fintechs continues to attract large funding rounds.
According to the report, challenger banks attracted 50% of the top ten largest deals in EMEA during H1’20.
US Firms Still lead the Investment in Fintech Despite the Global plunge
According to the report, the Americas still accounted for the largest share of total Fintech investment across the globe by the end of the second quarter of 2020. It is responsible for a $12.9 billion investment. ASPAC follows with $8.1 billion in total investment during the half first of 2019. EMEA accounted for $4.6 billion in Fintech investment. M&A activity generally dropped in all regions of the world.
Southeast Asia Warming up for Fintech Activity
Asia-Pacific (ASPAC) recorded a significant total Fintech investment during the half first of 2020. The leading Fintech companies in Indonesia, Singapore, and India were leading in the total amount of Fintech investment. Companies from other countries such as Japan, South Korea, and India also had a significant investment in Fintech during H1’20.
Government regulatory efforts contributed significantly to the rise of Fintech investment in ASPAC. The Australian government, for example, formed a committee on Financial Technology and Regulatory technology to understand the impact of COVI-19 on the Fintech sector.
Corporate Fintech Investment Remains Strong in the Face of COVID-19
According to the report, corporate investment remains strong despite the effect of COVID-19. There was a $12.2 billion Fintech investment by Corporates in H1’20 across the globe. Leading this category of investors was the United States with over $2.4 billion in the first quarter. The second quarter also produced nearly the same figure. Corporate investment is expected to remain strong as more corporates invest in digital channels to serve their customers better in the face of COVID-19.
Beyond COVID-19, the Future of Fintech
COVID-19 has created a new normal that is accelerating digital trends. The use of countless payments has increased across many economies as people try to observe the measures laid down to curb the novel Coronavirus. There is also a demand for and use of digital service models. Such ongoing accelerations of digital trends will drive Fintech investments in direct Fintech solutions. Such changes are likely to remain beyond the COVID-19 pandemic. We will never return to the original Fintech position that was there before the outbreak of this virus.