The general consensus in 2023 has been that the fintech market has struggled. Due to a variety of factors like rising interest rates, there has not been as much funding in the sector as in previous years. Despite this, according to KPMG‘s latest Pulse of Fintech report, some subsectors, like green fintech have seen a growth in interest and funding.
The first six months of 2023 were difficult for the fintech market globally, with both total funding and the number of deals dropping, from $63.2billion across 2,885 deals in H2’22 to $52.4billion in across 2,153 deals in H1’23.
The cloud of uncertainty permeating the market continued to wear on investors, driven by factors including global macroeconomic concerns (high inflation and rising interest rates), geopolitical tensions (the ongoing conflict between Russia and the Ukraine), and tech sector challenges (depressed valuations and a continued lack of exits). The collapse of several US banks early in 2023 likely also kept many investors in wait-and-see mode during H1’23.
But not all the news was negative in H1’23. A number of sectors attracted robust funding during the first half of 2023. Supply chain and logistics-focused fintechs attracted $8.2billion in funding in H1’23—well above the space’s 2019 annual record of $5.5billion. Green fintech also had robust interest, with $1.7billion of funding during H1’23. This is already slightly ahead of its 2022 results ($1.5billion).
Regional disparities
At a regional level, the Americas saw fintech funding grow—from $28.9billion to $36.1billion between H2’22 and H1’23. This was all despite a decline in deals volume—from 1,323 to 1,011 deals — over the same timeframe. In the EMEA region, fintech funding dropped by more than 50 per cent, falling from $27.3billion across 963 deals in H2’22 to $11.1billion across 702 deals in H1’23. Fintech funding also dropped in the ASPAC region—from $6.8billion across 583 deals in H2’22 to $5.1billion across 432 deals in H1’23.
“It wasn’t a surprise to see fintech funding decline in the first six months of 2023, given the enormous headwinds pressuring the market at the moment,” said Judd Caplain, global head of financial services at KPMG. “But the long-term business case for many subsectors within fintech remains very strong—particularly for sectors like payments, insurtech, and wealthtech. Once market conditions begin to even out, funding will likely rebound–if not to the record level experienced in 2021.”
US accounts for more than two-thirds of H1’23 fintech funding
The US took the lion’s share of fintech funding in H1’23, its $34.9billion in funding accounting for more than two-thirds of the $52.4billion seen globally.
The US also attracted five of the seven $1billion+ fintech deals of H1’23, including the $8billion buyout of Coupa by Thomas Bravo, the $6.9billion VC raise by Stripe, the $4billion acquisition of EVO payments by Global Payments, the $2.6billion buyout of Duck Creek Technologies by Vista Equity Partners, and the $1.8billion buyout of Moneygram by Madison Dearborn Partners LLC.
Notably, the buyout of Coupa, the VC raise by Stripe, and the acquisition of EVO payments, reflect the trend to invest in payments. The subsector remains top with $16billion in funding in H1’23.
EMEA region sees falls more than 50 per cent in funding between H2’22 and H1’23
Total fintech funding in the EMEA region was just $11billion in H1’23. This was less than half the $27billion seen in H2’22.
The UK attracted over half of this amount ($6billion), including the $3.1billion buyout of Wood Mackenzie by Veritas, a $602million raise by AI-powered lending company Abound, and a $250million raise by e-trading platform eToro.
While other countries in the region lagged far behind the UK’s results, several countries attracted deals over $250million. These include France (Ledger—$493million), Switzerland (Teylor—$299million; Metaco—$250million), and Mauritius (Bold Prime—$250million).
ASPAC sees fintech funding decline to $5.1billion in H1’23
Fintech funding in the ASPAC region dropped from $6.8billion in H2’22 to $5.1billion in H1’23. A far cry from the record-breaking six months experienced in H1’22 when fintech funding reached over $45billion.
The largest fintech deal in the ASPAC region during H1’23 was $1.5billion raise by China-based consumer finance services company Chongqing Ant Consumer Finance. Other deals in the region during the quarter were significantly smaller, including the $304million buyout of India-based SME lending company Vistaar Finance by PE firm Warburg Pincus, the $270million raise by Singapore-based credit services firm Kredivo Holdings, and a $200million raise by India-based digital lending platform Creditbee.
In uncertain future, AI expected to make big gains
With no end to many of the geopolitical and macroeconomic uncertainties in sight, fintech funding in H2’23 is expected to remain relatively soft. Although if the market stabilises, fintech funding could start to see a cautious rebound. One area well-positioned to see a strong uptick in interest from investors in H2’23 is artificial intelligence—and generative AI, in particular. Companies around the world are looking to leverage AI’s full potential as part of efforts to improve both operational efficiencies and customer value.
“It is still very early days when it comes to the application of generative AI to use cases in financial services,” said Anton Ruddenklau, global fintech leader at KPMG. “But looking forward, it is an area that is attracting enormous interest and funding—particularly in areas like cybersecurity, regtech, and wealthtech. Over the next six months, we’ll start to see an uptick in investors embracing the space as corporates demand ways to leverage generative AI effectively.”
Francis Bignell
