Fintech Funding Plummet Off a Cliff: Worst Results in 5Y

by

The latest Pulse of Fintech report by KPMG highlighted a notable downturn in fintech investment in 2023. Global fintech investment
fell to $113.7 billion in 2023, a significant drop from $196.3 billion in 2022. The number of
fintech deals also declined to 4,547, marking the lowest level since 2017.

As
investment sentiment cooled significantly, global funding for fintech reached
its lowest point in five years, totaling $113.7 billion through 4,547
transactions in 2023. This pullback was influenced by concerns over high
interest rates that persisted, geopolitical tensions in Ukraine and the Middle
East, declining fintech valuations, and a challenging exit landscape.

“2023 was a
difficult year for the fintech market globally, with both total fintech
investments,” commented Anton Ruddenklau, the Global Head of Fintech and
Innovation at KPMG. “The year-over-year decline in fintech investment occurred
across all key regions.”

Source: KPMG

Global
fintech investment experienced a slight uptick between the first and second
halves of the year, climbing from $55.5 billion in H1 2023 to $58.2 billion in
H. This increase was fueled by six blockbuster deals exceeding $1 billion each.

Notable
transactions included the acquisition of US-based Black Knight by
Intercontinental Exchange for $11.7 billion, the acquisition of US-based Adenza by
Nasdaq for $10.5 billion, a private equity raise of $6.9 billion by UK-based Finastra, the buyout of US-based Avantax by Cetera for $1.2
billion, the venture capital
raise by California-based Generate for $1 billion, and the acquisition of
Brazil-based Pismo by Visa for $1 billion.

Source: KPMG

Regional and Sector Trends

This drop
occurred across all major regions, with the steepest declines in Asia-Pacific
and Europe. Investment in the Americas showed the most resilience but still
fell 18% year-over-year. The US continued to lead, accounting for nearly
two-thirds of all fintech funding, securing $78.3 billion over 2,136
transactions.

These figures are confirmed by a separate report from Innovate Finance, which was presented earlier this year. It claims that the United Arab Emirates has managed to break free from the negative trend, with fintech funding nearly doubling, growing 92%.

Payments
remained the top sector by deal volume, despite funding falling 64% to $20.7
billion. Proptech and insurtech were rare bright spots, being the only
subsectors seeing rising investment.

Karim Haji, the Global Head of Financial Services at KPMG

“While the
investment numbers are soft now — due to broader market conditions — the next
year could be quite exciting for innovation in the fintech space,” added Karim
Haji, the Global Head of Financial Services at KPMG.

However, global
venture capital (VC) investment in fintech witnessed a significant decline
year-over-year and between the first and second halves of 2023. The total VC
investment plummeted from $88.8 billion in 2022 to $46.3 billion in 2023,
marking a substantial decrease. Similarly, the VC investment between H1 ($27.5
billion) and H2 ($18.8 billion) also experienced a sharp drop. Notably,
investment in later-stage deals decreased drastically from $37.4 billion in
2022 to $14.1 billion in 2023.

Fintech
investors grew more cautious amidst global instability, inflation concerns, and
doubts about valuations and exit opportunities. They increasingly focused on
profitability and sustainability, shunning risky bets. Partnerships and B2B
solutions attracted interest as did AI and embedded finance.

Murky Forecasts

Investment
is expected to stay soft in early 2024 before recovering later in the year as
rates potentially fall. M&A activity may also pick up as investors buy
distressed assets.

The report
highlighted one outlier to the trends: seed and early-stage funding hit record
highs in terms of deal numbers, indicating investors are still keen to test new
fintech models. Additionally, the report mentioned that AI would play an increasingly significant role in the fintech industry. This was also the topic of one of the recent panels during the Finance Magnates London Summit.

As the
report concluded, enhancing profitability and sustainability will be key for
fintech firms to thrive long-term amidst the current challenges.

The latest Pulse of Fintech report by KPMG highlighted a notable downturn in fintech investment in 2023. Global fintech investment
fell to $113.7 billion in 2023, a significant drop from $196.3 billion in 2022. The number of
fintech deals also declined to 4,547, marking the lowest level since 2017.

As
investment sentiment cooled significantly, global funding for fintech reached
its lowest point in five years, totaling $113.7 billion through 4,547
transactions in 2023. This pullback was influenced by concerns over high
interest rates that persisted, geopolitical tensions in Ukraine and the Middle
East, declining fintech valuations, and a challenging exit landscape.

“2023 was a
difficult year for the fintech market globally, with both total fintech
investments,” commented Anton Ruddenklau, the Global Head of Fintech and
Innovation at KPMG. “The year-over-year decline in fintech investment occurred
across all key regions.”

Source: KPMG

Global
fintech investment experienced a slight uptick between the first and second
halves of the year, climbing from $55.5 billion in H1 2023 to $58.2 billion in
H. This increase was fueled by six blockbuster deals exceeding $1 billion each.

Notable
transactions included the acquisition of US-based Black Knight by
Intercontinental Exchange for $11.7 billion, the acquisition of US-based Adenza by
Nasdaq for $10.5 billion, a private equity raise of $6.9 billion by UK-based Finastra, the buyout of US-based Avantax by Cetera for $1.2
billion, the venture capital
raise by California-based Generate for $1 billion, and the acquisition of
Brazil-based Pismo by Visa for $1 billion.

Source: KPMG

Regional and Sector Trends

This drop
occurred across all major regions, with the steepest declines in Asia-Pacific
and Europe. Investment in the Americas showed the most resilience but still
fell 18% year-over-year. The US continued to lead, accounting for nearly
two-thirds of all fintech funding, securing $78.3 billion over 2,136
transactions.

These figures are confirmed by a separate report from Innovate Finance, which was presented earlier this year. It claims that the United Arab Emirates has managed to break free from the negative trend, with fintech funding nearly doubling, growing 92%.

Payments
remained the top sector by deal volume, despite funding falling 64% to $20.7
billion. Proptech and insurtech were rare bright spots, being the only
subsectors seeing rising investment.

Karim Haji, the Global Head of Financial Services at KPMG

“While the
investment numbers are soft now — due to broader market conditions — the next
year could be quite exciting for innovation in the fintech space,” added Karim
Haji, the Global Head of Financial Services at KPMG.

However, global
venture capital (VC) investment in fintech witnessed a significant decline
year-over-year and between the first and second halves of 2023. The total VC
investment plummeted from $88.8 billion in 2022 to $46.3 billion in 2023,
marking a substantial decrease. Similarly, the VC investment between H1 ($27.5
billion) and H2 ($18.8 billion) also experienced a sharp drop. Notably,
investment in later-stage deals decreased drastically from $37.4 billion in
2022 to $14.1 billion in 2023.

Fintech
investors grew more cautious amidst global instability, inflation concerns, and
doubts about valuations and exit opportunities. They increasingly focused on
profitability and sustainability, shunning risky bets. Partnerships and B2B
solutions attracted interest as did AI and embedded finance.

Murky Forecasts

Investment
is expected to stay soft in early 2024 before recovering later in the year as
rates potentially fall. M&A activity may also pick up as investors buy
distressed assets.

The report
highlighted one outlier to the trends: seed and early-stage funding hit record
highs in terms of deal numbers, indicating investors are still keen to test new
fintech models. Additionally, the report mentioned that AI would play an increasingly significant role in the fintech industry. This was also the topic of one of the recent panels during the Finance Magnates London Summit.

As the
report concluded, enhancing profitability and sustainability will be key for
fintech firms to thrive long-term amidst the current challenges.

Source link

Related Posts

Leave a Comment