According to a KPMG report, global fintech investment fell to a five-year low of $113.7 billion across 4,547 deals in 2023 as investors withdrew from large deals due to worries about persistently high interest rates, conflicts in the Middle East and Ukraine, declining fintech valuations, and the dry exit environment. Fintech investment declined from $6.8 billion to $3 billion in India between 2022 and 2023, while it also decreased from US$4.5 billion to US$2.2 billion in Singapore.
With $78.3 billion in fintech funding across 2,136 deals, of which the US took $73.5 billion across 1,734 deals, the Americas drew the largest share of investment (70 percent) during the year. This is in contrast to the EMEA region, which attracted $24.5 billion across 1,514 deals, and the APAC region, which attracted $10.8 billion across 882 deals.
The overall amount invested in fintech increased from $55.5 billion in H1'23 to $58.2 billion in H2'23, indicating a slight increase over the first half of 2023. This outcome was largely influenced by six acquisitions worth at least $1 billion. Venture capital investment did not fare as well, falling from US$27.5 billion to US$18.8 billion in H1 and H2 of 23.
Sector-wise, the payments industry brought in the most amount of fintech investment worldwide ($20.7 billion), but this was a significant decrease from the $58 billion recorded in 2022. In contrast, investors were particularly interested in proptech and ESG; proptech investment hit a new high of $13.4 billion in 2023, while ESG-focused fintech investment increased year over year from $1.2 billion to $2.3 billion.
"In 2023, the fintech industry struggled a little bit due to numerous problems that affected the overall investment environment. According to Anton Ruddenklau, Global Head Fintech and Innovation, Financial Services, KPMG International, "investors were definitely sharpening their pencils—enhancing their focus on profitability - even though there were still good deals to be had." "The fintech industry as a whole had a poor year, although there were a few standout examples. Investors welcomed AI-focused fintechs, and proptech and ESG fintechs accepted them as well; this helped, especially in the past six months. Other noteworthy fintech investment categories for the year included cybersecurity (US$1.3 billion), regtech (US$2.6 billion), ESG fintech (US$2.3 billion), insurtech ($8.1 billion), and crypto and blockchain (US$7.5 billion).
The Second-best Year to Invest in ESG Fintech
With $2.3 billion in investments, 2023 was the second-best year for fintech investment ever, only surpassed by the $3.7 billion peak in 2021. In this field, the US accounted for the majority of deals in 2023. Investment in ESG-focused fintech solutions is expected to continue to trend positively through 2024 due to a combination of ongoing legislative reforms and the ambitious net zero goals made by corporations and governments.
Investments in Artificial Intelligence are Highly Prioritized
Throughout 2023, there was a noticeable surge in interest in artificial intelligence (AI) in the investing market, including the fintech sector. Fintech businesses powered by AI brought approximately $12.1 billion in funding in 2023. The US$28.1 billion in funding seen in 2022 has significantly decreased, but this does not indicate a decline in interest in the space; instead, many financial institutions and fintechs in 2023 opted to embrace AI through product spending and alliances rather than direct investment.
In the Asia-Pacific area, Fintech Investment has decreased by almost 75%
Fintech investment in the ASPAC area had a very bad year in 2023, with only $10.8 billion invested over 882 agreements, compared to US$51.3 billion in 2022—a figure that was helped by the US$29 billion acquisition of Australia-based Afterpay in 2022. Fintech investment declined from US$4.5 billion to US$2.2 billion in Singapore between 2022 and 2023, but it was especially weak in India, where it fell from US$6.8 billion to US$3 billion. China saw an increase in fintech investment year over year, rising from US$800 million, a ten-year low, to US$1.9 billion. The amount of venture capital invested in the Asia-Pacific area fell from $15.4 billion in 2022 to $7.8 billion in 2023. Corporates took involved in transactions worth US$4.1 billion out of this.
In ASPAC, H2'23 was a little slower, with $3.4 billion in investments going to fintechs. The majority of investment in H2'23 came from venture capital raises, led by Hong Kong (SAR), India-based Perfios (US$229 million), Japan-based Gojo & Company (US$110.6 million), China-based Micro Connect (US$458 million), and Singapore-based Boltech ($246 million).
Things to look out for in H1'24
• A growing sense of optimism as values normalize and interest rates begin to stabilize within the fintech industry.
• Investor interest in M&A opportunities is growing, and they are paying more attention to troubled assets.
• The fintech industry's hottest topic is still payments, which is seeing a rise in consolidation as businesses try to expand locally, regionally, and internationally.
• AI is a top priority for businesses in the fintech industry.
• The United Arab Emirates is steadily developing into a regional center for fintech, drawing more interest from international investors and higher transaction amounts.
