Global RegTech funding reached $2.4bn in Q1 2020, recording a growth of 26.3% compared to the previous quarter despite the spread of coronavirus and the ensued economic uncertainty.
As digital transformation in financial services is accelerated amid the social distancing measures and remote working environment, investors saw a strong case for the RegTech sector since most compliance processes still require on-premises IT infrastructure. In addition, many transactions were in the pipeline for several months and hence their completion was not affected greatly by global lockdown measures.
However, as the long-term outlook for the economy has been downgraded and investors are forced to reconsider their risk exposures, we are starting to see the real impact of Covid-19 on RegTech investment. Companies in the sector raised just $1.5bn across 51 funding rounds in the second quarter of 2020. These figures represent a five-quarter low for both deal activity and total capital invested and a quarter-on-quarter decline of 40.7% and 37.5%, respectively.
Despite that certain sectors such as Cybersecurity/Information Security, Onboarding Verification and Communications Monitoring saw healthy investment as they are critical to remote operations. For example, Onfido, a UK-based AI identity verification platform, raised $100m in a Series D round to invest in machine-learning technology, consolidate existing markets and keep up with demand in new areas.
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