There are opportunities for fintech in Ireland post-Brexit, according to KPMG, but early-stage companies may be struggling to secure investment.
Irish fintechs secured nearly $400m in M&A, venture capital and private equity transactions in 2020, according to the latest KPMG Pulse of Fintech report.
This was largely due to a record start to the year, where $328.6m was secured by Irish companies. The H1 figures were dominated by the landmark acquisition of Prepaid Financial Services by Australia’s EML Payments, which KPMG said was the largest strategic M&A fintech deal globally in the first half of 2020.
Investment in the second half of the year was more modest, falling from $104.8m in 2019 to $68.6m in 2020. However, there were a number of large deals in the fourth quarter, including Irish company Immedis securing $50m from Lead Edge Capital, and Wayflyer receiving $10.2m in seed capital.
‘Trends indicate that market activity is very focused on big deals with larger Irish players who are already competing on the global stage’
– ANNA SCALLY
While the UK is developing a strategy to supercharge its fintech industry post-Brexit, Ireland remains an attractive option for companies looking to establish an EU base and this could provide a boon to the sector going forward.
“Despite the anticipated dip in H2 2020 in light of the pandemic, Ireland remains well positioned to see increased fintech investment post-Brexit from banks and financial institutions choosing Ireland as the base for their European operations,” said Anna Scally, partner and fintech lead at KPMG Ireland.
“As well as this outside interest, fintechs are shaking up the marketplace domestically with incumbent banks really recognising the force of their competition.”
A paper from the Financial Services Union released today (11 March) said fintech and digital services have upended the way the Irish banking sector operates.
But Scally added that the Irish fintech ecosystem is “perfectly positioned” to provide solutions for financial institutions that need to adapt and stay relevant to customers.
Early-stage companies may struggle
Looking outside of Ireland, a record $3bn investment in the third quarter of the year helped EMEA fintech investment reach an all-time high of $9.3bn.
Payments companies and challenger banks were particularly popular with VC investors in Europe in 2020, with three companies raising rounds of more than $500m in the first half of the year – Sweden’s Klarna raised $650m, Poland-based Polski ePlatnosci raised $587m and Revolut secured $580m.
Looking ahead, KPMG predicts that regulatory technology will remain an opportunity for Irish companies in 2021. Globally in 2020, it said that interest in regtech skyrocketed as companies worked to digitise processes quickly while managing their regulatory requirements.
One note of caution for this year is whether smaller fintechs and start-ups will get left behind.
Figures for 2020 from the wider start-up scene in Ireland highlighted a steep decline in early-stage start-up funding, as investors backed safer bets during the pandemic. This trend was also seen in the fintech sector, according to KPMG’s data.
“Trends indicate that market activity is very focused on big deals with larger Irish players who are already competing successfully on the global stage,” Scally said.
“Earlier stage companies will struggle to scale without investor backing and this will have a knock-on effect for many years to come.”