EMEA to see increasing investment in DeFi in 2022: KPMG

KPMG’s recently published Pulse of Fintech H2’21 bi-annual report has revealed that investment in fintech companies in Europe, Middle East and Africa (EMEA) touched $77.4bn across 1,859 deals. Total global fintech funding across M&A (mergers and acquisitions), PE (private equity) and VC (venture capital) reached $210bn across a record 5,684 deals in 2021, according to the bi-annual report.

The report highlighted that the fintech ecosystem in the Middle East also continued to evolve, with a $75m raise by Bahrain-based Rain and a $50m raise by UAE-based Tabby in the second half of 2021. In the UAE, fintech VC, PE, and M&A activity saw significant growth in 2021, with the UAE continuing to foster an environment that encourages and celebrates innovation in fintech.

Goncalo Traquina, head of Management Consulting, KPMG Lower Gulf, said: “The UAE government has moved forward with a number of initiatives to foster the growth of fintech. Cryptocurrencies and blockchain are expected to retain their appeal to investors in 2022, as increasing numbers of crypto firms seek regulatory guidance to grow and develop the sector. While much of fintech investment in the UAE has been focused in the digital banking and payments space, lending is projected to grow on the back of AI and machine learning being deployed to improve credit risk assessments.”

The Innovation Hub in DIFC allocated about $100m to help startups grow through its ‘Fintech Fund Accelerator Program’. In October 2021, the Central Bank of the UAE signed an agreement with Dubai International Financial Centre at Expo Dubai to enhance collaboration under their co-sandbox programme for fintechs. These, combined with startup funds, are likely to be a big part of developing the UAE’s fintech ecosystem over time.

According to the report’s findings, payments continued to attract the most funding among fintech sub-sectors, accounting for $51.7bn in investment globally in 2021 – up from 29.1bn in 2020. A continued surge in interest in areas like ‘buy now, pay later’, embedded banking, and open banking aligned solutions has helped keep the payments space very robust.

The report revealed that blockchain and crypto were also a “hot” sector, attracting a record $30.2bn in investment – up from $5.5bn in 2020 and more than three times the previous record of $8.2bn seen in 2018. Cybersecurity ($4.85bn) and wealthtech ($1.62bn) also saw record levels of investment.

The largest fintech deals in the second half of 2021 included the S$9.2bn acquisition of Denmark-based payments processor Nets by Italy-based Nexi, the $3.75bn merger of fintech cloud platform company Calypso Technology and regtech AxiomSL to form Adenza in the US, and the $2.7bn acquisition of Japan-based Paidy by PayPal.

According to the report, fintech trends to watch in EMEA in 2022, included:

• Increasing investment in decentralised finance (DeFi) and a stronger push for the development of a common regulatory framework for crypto
• Fintechs looking to expand their footprint across the EU—and beyond
• Growing fintech deal sizes in the Middle East and Africa – primarily in the payments space
• Increasing interest in B2B fintech solutions and business models
• Increasing focus on IPO opportunities as investors in mature fintechs look to exit