Key Insights from KPMG’s Pulse of Fintech H2’23 Report. In a challenging year for global fintech markets, KPMG’s bi-annual report, the Pulse of Fintech H2’23, provides crucial insights into the industry’s growth trajectory between 2022-2023.
The global fintech market faced challenges in 2023 with a decrease in investment activity. The total funding dropped from US$196.6 billion across 7,515 deals in 2022 to a six-year low of US$113.7 billion across 4,547 deals in 2023. This decline was mainly attributed to factors such as conflicts in Ukraine and the Middle East, high-interest rates, and limited opportunities for profitable exits. As a result, investors become more cautious and carefully manage their resources throughout the year. These findings were highlighted in the Pulse of FinTech H2 ’23 report, which is published in a bi-annual report by KPMG to analyze trends in fintech investments.
SUMMARY
– Year-Over-Year Growth in Proptech and Insurtech: Proptech and Insurtech were the only major fintech subsectors to experience year-over-year growth. Proptech investment surged from $4.1 billion to $13.4 billion, while Insurtech investment grew from $5.9 billion to $8.1 billion.
– AI Leadership Despite Funding Drop: Despite an overall drop in funding in 2023, artificial intelligence (AI) retained its leadership position in technology investments, attracting over $12.1 billion in fintech funding.
– ESG Prioritization in Fintech: Environmental, social, and governance (ESG) concerns gained prominence, reflected in the growth of ESG fintech investment from $1.2 billion to $2.3 billion. This highlights an increasing focus on sustainability and responsible financial practices within the fintech sector.
– Global Fintech Investment Landscape: The global fintech investment landscape witnessed a decline to $113.7 billion in 2023, reflecting macroeconomic concerns and a lack of promising exits. Regional funding distribution favored the Americas, particularly the United States, while M&A agreements and global venture capital investments experienced reductions.
The second half of 2023 showed a marginal recovery in the global fintech investment market. The total funding increased from $55.5 billion to $58.2 billion. Six deals with a combined value of more than $1 billion were the main drivers of this positive change. Some notable transactions included Intercontinental Exchange’s acquisition of Black Knight for $11.7 billion. Nasdaq’s acquisition of Adenza for $10.5 billion, Finastras equity raises $6.9 billion, Cetera’s buyout of Avantax for $1.2 billion generates a venture capital raise of $1 billion, and Visa’s acquisition of Pismo for $1 billion. However, there was a decline in venture capital investments during the first half of the year, falling from $27.5 billion to $18.8 billion.
In terms of fintech investment, the United States had the largest share, accounting for 70% of the funds. Among the countries in this region, the United States attracted the most investment, reaching $73.5 billion. On the other hand, in the EMEA region, there were $24.5 billion invested in fintech across 1,514 deals, while in the ASPAC region, $10.8 billion was secured through 882 deals. Interestingly, we observed that most of these investments went into the payments sector globally, with a funding of $20.7 billion. However, it is worth noting that this is significantly lower than the previous figure of $58 billion invested.
Moreover, we noticed a growing trend towards investing in proptech and ESG-focused fintech ventures. Proptech investment reached an all-time high of $13.4 billion. There was also an increase in ESG-focused fintech investments, from $1.2 billion to $2.3 billion year over year.
“The fintech market floundered somewhat in 2023, buffeted by many of the same issues challenging the broader investment climate. While there were still good deals to be had, investors were definitely sharpening their pencils—enhancing their focus on profitability. While it was a depressing year for the fintech market overall, there were a few particularly bright lights. Proptech, ESG fintech, and investors embraced AI-focused fintechs—which helped particularly in the last six months.”
Anton Ruddenklau, Global Head Fintech and Innovation, Financial Services, KPMG International
ESG Fintech Investment maintained its pace in 2023
The fintech industry experienced its second-highest year in terms of investment. An investment of $2.3 billion was made, approaching the highest point of $3.7 billion reached in 2021. The United States has notably attracted investments in this sector. Generate, a company specializing in infrastructure, has secured $1.1 billion in funding, a remarkable achievement. Rubicon Carbon, a platform for carbon custody, secured $1 billion in funding through equity investors. Xpansiv, a company specializing in environmental commodities, has secured a significant amount of venture capital. The precise amount is $525 million. CleanCapital, a technology-focused investment firm specializing in cleantech, successfully secured $500 million in investments. Given the ongoing developments and the growing number of net zero promises from governments and corporations, it is anticipated that investments in fintech solutions focused on environmental, social, and governance (ESG) factors will continue to flourish until 2024.
Artificial intelligence emerged as an eye-catcher for investors
Artificial intelligence (AI) is continuously emerging as a prominent factor in the investment business. The fintech industry also adopted the same course of action. It’s been seen that AI-driven fintech businesses secured a capital of $12.1 billion in 2023, indicating a decline from the previous year’s investment of $28.1 billion in 2022. Nevertheless, the decrease in funding does not indicate a waning interest in AI. Instead of making direct investments, numerous financial institutions and fintech companies have opted to integrate AI into their operations by forming partnerships and strategically allocating funds.
The US witnessed a Decline in fintech investment from $95.4 billion in 2022 to $78.3 billion in 2023
Fintech investment in the Americas witnessed a decline from $95.4 billion in 2022 to $78.3 billion in 2023. The United States attracted the largest share of this investment, with a multitude of deals amounting to $73.5 billion. Brazil and Canada secured money, with Brazil securing $2.6 billion and Canada obtaining $920 million. The region experienced a significant decline in venture capital investment, with the amount decreasing from $44.7 billion to $26.6 billion compared to the previous year. During this era, corporate organizations were actively involved in transactions totaling $15.1 billion. A total investment of $38.4 billion across various acquisitions in the second half of 2023 indicates that the fintech sector in the Americas experienced difficulties. Notably, the United States contributed a significant investment of $35 billion.
EMEA Region shows resilience in the drop of fintech investment to a seven-year low of $24.5 billion in 2023
The fintech industry in the EMEA region encountered many problems in 2023. There was a significant decrease in investment, with the amount reducing from $49.6 billion in 2022 to $24.5 billion. The decrease was also evident in the number of transactions, which decreased from 2,478 to 1,514. Nonetheless, there was a resurgence in the latter half of the year, with investment rising to $16.3 billion, a significant rise from the $8.2 billion recorded in the first half. Finastra, a UK-based corporation, raised $6.9 billion through equity fundraising.
In the latter part of 2023, the fintech market in this area demonstrated its characteristics as businesses from seven countries successfully obtained places within the top ten deals. The nations encompassed in this group are Sweden, the Netherlands, Italy, the United Arab Emirates (UAE), Finland, and Spain. This selection emphasizes the distribution of investments among several places within the EMEA region.
Asia-Pacific Region Redefining Fintech’s Landscape From the Fall of 75%
ASPAC reported a decline in fintech investment, with a total of US$10.8 billion invested in 882 deals compared to the previous year’s investment of US$51.3 billion. The US$29 billion acquisition of Afterpay, an Australian company, significantly improved the investment figures for 2022. India had a decline in fintech investment, with a dip from US$6.8 billion to US$3 billion during the years 2022 and 2023. In a similar vein, Singapore also witnessed a downturn, with investments plummeting from US$4.5 billion to US$2.2 billion. China experienced a surge in fintech investment, climbing from its lowest point in ten years at $800 million to reach $1.9 billion.
“The fintech market has been evolving and maturing since it got its start in 2004 and really came into its own in 2008. The technology underpinning fintech keeps changing—and right now, we’re seeing it change again with the application of AI and generative AI.
Karim Haji, Global Head of Financial Services, KPMG International
You could say that we’re coming into the next wave of fintech. 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.”
Venture capital (VC) investment in the ASPAC region decreased from US$15.4 billion in 2022 to US$7.8 billion in 2023, with corporations participating in US$4.1 billion worth of deals. The second half of 2023 (H2’23) witnessed a slightly slower pace in ASPAC, with fintech companies attracting US$3.4 billion in investment. VC funding accounted for the majority of investments in H2’23, including notable raises by companies such as Micro Connect (Hong Kong (SAR), China), Boltech (Singapore), Perfios (India), and Gojo & Company (Japan).
Predictions for fintech investment remain low throughout the first half of 2024
As we enter the first quarter of 2024, it is expected that global fintech investment will continue to be tempered by the persistent lack of exits, the high-interest rate environment, and the ongoing global conflicts. A potential increase in investment activity exists if interest rates remain stable and possibly decline. It is anticipated that investors will maintain their keen interest in AI and B2B solutions. There is potential for a revival in merger and acquisition (M&A) activity due to investors’ growing interest in troubled properties.
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By Ravi Kumar
