Global fintech investment reached $98 billion with 2,456 deals at mid-year — well over the milestone reached at the second half of last year, when global fintech funding hit $87 billion. Most of the 2021 funding — $42.1 billion — went to U.S. fintechs.

A number of factors, including growing venture capital and corporate venture capital investments, are driving the surge in fintech investments, reports Big Four accounting organization KPMG in its “The Pulse of Fintech H1’21,” report released today.

Global venture capital investment came to more than $52 billion, which is close to the annual record of $54 billion seen in 2018, KPMG reported. The largest VC rounds this year so far include:

• U.S.-based Robinhood at $3.4 billion;
• Brazil-based digital Nubank at $1.5 billion;
• Sweden-based buy now, pay later firm Klarna, with two rounds totaling $1.9 billion; and
• Germany-based Trade Republic, at $900 million.

Corporate VC, private equity funding grows

Corporate VC funding for fintech also surged to a record-setting volume, with $21 billion invested so far this year.

“Corporates around the world are under pressure to increase the velocity of their digital transformation activities and to enhance their digital capabilities,” the report stated. “Over the last year, many have seen that it’s quicker to do so by partnering with, investing in or acquiring fintechs, particularly with respect to high demand skills.”

Private equity firms invested $5 billion in fintech during the same period, surpassing the 2018 annual high of $4.7 billion. The largest private equity deals included the $800 million buyout of InvestCloud by Motive Partners and Clearlake Capital; Silverlake’s $800 million investment in Abu Dhabi-based Group 42; and the $600 million buyout of Ireland-based Fenergo by Astorg and Bridgepoint.

Cross-border M&A deals double

The report also calls out cross-border mergers and acquisitions (M&A) deals, which more than doubled 2020 rates — to $27.7 billion in the first half of 2021 from $10.3 billion in all of 2020.

“Following a pandemic-driven slowdown in cross-border M&A, many incumbents and mature fintechs embraced cross-border M&A as a means to gain critical mass at a regional or global level or to expand services and capabilities,” the report states.

Large fintechs and platform players focused on building out their platform model or creating “super apps,” “embracing solutions such as embedded finance in order to provide a stronger ecosystem of services,” KPMG noted.

Big Tech plays fintech

Finally, the report pointed to the trend for Big Tech players such as Google and Microsoft to move into the space.

“Big techs have continued to move into the banking space to create an extended experience for their customers or to remove friction points in processes — primarily by forging partnerships with existing banks,” the report stated.

Specifically, it noted that Google announced partnerships with Citi, BBVA, Bank of Montreal, Stanford FCU and others in order to provide Google Plex digital bank accounts integrated with Google Pay.

Trends to watch for remainder of 2021

KPMG also predicted six fintech trends to watch during the second half of 2021:

1. Crytpocurrency as a hot focus for investors;
2. A surge in M&A activity;
3. More special purpose acquisition company (SPAC) deals, with U.S. SPACs looking to Europe, the Middle East and Africa, and the Asia-Pacific for fintechs to bring to IPO;
4. More investments in cybersecurity including fraud management, know your customer, and passwordless security;
5. A focus on business-to-business services, such as banking as a service, in the payments space as well as in insurtech, wealthtech, and regtech. This will mean an increase in embedded finance.
6. Partnerships, partnerships, and more partnerships “involving a range of participants from the big techs and platform players to financial institutions and larger fintechs looking to add to their core services,” according to KPMG.