Fintech is making waves in the traditional financial sector, adopting innovative technologies that are revolutionizing and enhancing banking. Venture capitalists have been quick to respond, funnelling huge amounts of investment into financial technology.
2021 was a particularly big year in this regard. BCC Research estimated the value of global VC investments in 2021 at $115 billion, up from $53.2 billion in 2018, while the amount of corporate VC investment now amounts to about $50 billion, up from $24 billion in 2020. While investment numbers have dipped in subsequent years, this is mainly due to the aforementioned boom. As it stands, the space remains strong. But what was so standout about 2021?
Record-breaking fintech investment in 2021
In 2021 there was a record seven fintech-focused VC funding rounds of over $1 billion. Most of these were raised in the second half of the year, and all of which were in the Americas: $2 billion raised by US company Generate, $1.1 billion raised by Brazilian company Nubank, $1.1 billion raised by US company Chime, and $1 billion raised by Bahamas-based FTX.
The two largest VC rounds in EMEA in 2021 were N26's $900 million funding and Klarna's $1.2 billion VC deal. Both companies are based in Sweden.
Over $30 billion was invested in the cryptocurrency and blockchain industries in 2021, up from $5.4 billion in 2020. Globally, there has been a sharp rise in awareness in financial institutions of the potential contribution of cryptocurrencies and their underpinning technologies. Some central banks are even thinking about creating digital currencies in the same vein as China's digital yuan.
This trend has also sparked increased scrutiny from regulators. In 2021, China banned crypto mining and trading, and India promptly followed suit. Meanwhile, other countries have continued to strongly support development and solutions in the cryptocurrency space.
Throughout 2021, the buy now, pay later (BNPL) space saw significant investment, ranging from Klarna raising $1.2 billion in VC to PayPal's $2.7 billion acquisition of Japan-based Paidy. Block Inc. (formerly Square) acquired Australia-based Afterpay for $29 billion, the largest M&A transaction in Australia's corporate history.
Financial institutions around the world are under intense pressure to reduce their reliance on legacy infrastructure and use the cloud to improve their core banking systems in order to provide better customer experiences. Over the course of 2021, there was a surge in interest from fintechs in such activities, particularly from Tier 1 banks. JP Morgan Chase announced that it would switch to Thought Machine's core banking platform; JP Morgan Chase also contributed to Thought Machine's $200 million funding during the period.
In 2021, there was increased interest in fintechs that can assist businesses in leveraging their data for more agile lending, insurance, or AML and fraud prevention. Quantexa, based in the UK, raised $153 million in Series D funding to support the expansion of its AI and machine learning-driven contextual decision intelligence solution.
Private equity firms were more active in the fintech sector than ever before in 2021, with 144 deals totaling more than $12 billion in investment – more than doubling the previous high of $5 billion in 2018. There were a number of large private equity deals in the US (NYDIG with $767 million, Mindbody with $500 million and iCapital Network with $440 million), the UK (Genesis Digital Assets with $431 million, DivideBuy with $413 million), Brazil (Provo with $251 million), Vietnam (Vietnam Payment Solution with $250 million), and India (Vastu Housing Finance with $200 million).
Following a drop to $10.7 billion in 2020, cross-border M&A in the fintech space experienced a strong resurgence in 2021, with a record 275 deals accounting for $36.2 billion in deal value compared to total global fintech M&A deal value ($83.1 billion). The London Stock Exchange acquired US-based Refinitiv for $14.8 billion, US-based Nasdaq acquired Canada-based Verafin for $2.7 billion, Italy-based Nexi acquired Denmark-based Nets for $9.2 billion, and PayPal acquired Japan-based Paidy for $2.7 billion.
Digitalization is becoming a prominent feature in all businesses, but it’s very much the backbone of fintech. In recent years, digital assets have become more prominent across the healthcare, banking, education, finance, publishing, mining and energy industries. The management of digital assets efficiently is becoming increasingly critical. However, the changing expectations of customers and the shifting market environment have forced vendors to implement advanced technology in the fintech sector so that they can modernize their communication systems and processes to facilitate business value across channels.
Market updates on the fintech sector
BCC Research’s report FinTech: Investment, Innovation, Ideology and Technology provides a comprehensive dive into the market for fintech. Delivering updates and forecasts out to 2027, as well as regional and technological analysis, the report acts as an invaluable aid to those with stakes in the sector .
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