Singapore's fintech landscape remains resilient: KPMG

• Deal numbers the highest in three years; more to come in 2022
• Payments, cryptos, blockchain among the areas of growth; cyber security a concern

Singapore’s Fintech industry has proven resilient with deal numbers for the first half of 2021 growing highest in three years (year-over-year) since the first half of 2018, according to a new study by KPMG.

A total of 72 deals amounting to US$614.2 million were transacted for Singapore fintechs from January to June 2021, a 22% increase from 59 deals in the first half of 2020,  and 50% higher than the 48 deals in 1H 2019, the advisory firm said in a statement.

Based on data from its KPMG Pulse of FinTech Report, cash reserves, increasing diversification in hubs and subsectors, and strong activity across the world contributed to the record start to 2021.

“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 second half of 2021, we anticipate more consolidation will occur, particularly in mature fintech areas as fintechs look to become the dominant market player either regionally or globally.”

The firm said fintech investment were 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, it said.

They participated in close to US$21 billion 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.

It added that 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$4.7 billion across 357 deals in the second half of 2020, investment amount in the Asia-Pacific soared to US$7.5 billion across 467 deals in the first half of 2021.

This was largely driven by venture capital activity. India led the way with US$2 billion in total fintech investment, followed by China at US$1.3 billion, Australia at US$900 million, while Singapore is not far off at US$614 million, the report noted.

Singapore fintech growth

The report noted that while the number of deals transacted has certainly gone up, Singapore fintech firms are transacting smaller value deals compared to last year.

Transactions in first half of 2021 for Singapore fintechs totalled US$614.2 million, which is half of the first half in 2020, with a total deal value of US$1.02 billion.

A large part of total deal value in the first half of 2020 had been from the US$856 million deal scored by Singapore-based company, Grab, in that period, it said.

But the first half of 2021 showing for Singapore is still an improvement from two years back – the deal value is double that of first half of 2019’s US$302.6 million.

KPMG said the smaller sized deals are in part due to pull 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, it said.

Consequently, there will also not be as many start-ups within that specific segment immediately due to the incumbents that are formidable competition, it added.

KPMG also noted that 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$300 million in the first half of 2021 and announced a merger with e-commerce platform Tokopedia for US$18 billion to create the GoTo Group, it added.

Payments dominate

Meanwhile, fintech investments in the payments space have kept up momentum, retaining the top spot for investors' wallets globally at US$19 billion for the first half of 2021 compared to US$27.8 billion for the entire year of 2020.

The reported said deal values for payments globally exceeded that of other fintech segments in first half of 2021 such as blockchain and cryptocurrency (US$8.7 billion), insurtech (US$7.1 billion), regtech (US$6.6 billion), cybersecurity (US$3.7 billion) and wealthtech (US$1.4 billion).

Among the fintech investments into payments in Asia-Pacific for the first half of 2021, ‘buy now pay later’ was one of the fastest growing sub-sectors in the payments space.

KPMG said 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.

It added that 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.

It also noted that 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 merger deals for payments in first half of 2021, activities are building up this period with opportunities for companies to strategically acquire payment fintech firms or to expand market share in this space, it noted.

Watching cryptos

Cryptocurrency and blockchain is another space to watch as global investments in these fintechs in the first half of 2021 totalled US$8.7 billion, which is more than double the entire 2020's investment figure of US$4.3 billion.

In the same period, a significant amount of institutional money flowed into the crypto space, highlighting the broadening of the investor base, the report said.

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, it added.

VC investments have also been very strong in the blockchain and crypto space globally.

Numerous companies raised US$100 million+ funding rounds including: BlockFi (US$350 million), Paxos (US$300 million), Blockchain.com (US$300 million) and Bitso (US$250 million), it said.

Cyber security concerns

Meanwhile, 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, KPMG said.

Investments into cyber security fintechs grew dramatically, coming in at US$3.7 billion of investments in the first half of 2021 as compared to US$2.2 billion for the entire year of 2020.

Global investment in wealthtech also boomed in the same period, coming in at US$1.4 billion – an amount surpassing the investment of US$0.8 billion for the entire year of 2020. 

Finally, insurtech which attracted global investments of US$7.1 billion in the first half of 2021 compared to US$16.5 billion for the entire 2020, is seeing the lion's share of investments coming from the United States.

Looking forward to the second half of 2021, total fintech investment is expected to remain very robust in most regions of the world, KPMG said.

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, it added.