Global fintech investment update
The first 6 months of 2023 were quite challenging for the global fintech market.
Some of the challenges were expected – high levels of inflation, rising interest rates, the ongoing conflict between Russia and Ukraine, depressed valuations, and a lack of exits – while others were less so, such as the collapse of several banks in the US.
But while both total fintech funding and the number of fintech deals globally dropped from US$63.2 billion across 2,885 deals in H2’22 to US$52.4 billion across 2,153 deals in H1’23, the news wasn’t all negative. Despite market turbulence and declining funding in both the EMEA and ASPAC regions, the Americas saw fintech funding climb from US$28.9 billion in H2’22 to US$36 billion in H1’23.
Several fintech subsectors also saw strong levels of funding in H1’23. At mid-year, funding in logistics and supply chain-focused fintech was well above all previous annual totals ($8.2 billion), while the US$1.7 billion funding in ESG-focused fintech was ahead of 2022’s total.
Fintech investment trends
Looking back on the first half of 2023, fintech investor sentiment can be characterised as highly selective. Key trends over the last 6 months include:
- an increasing focus on operational efficiency, sustainable cash flows, and profitability – from both investors and fintechs looking to delay their next funding rounds
- continued resilience in the payments space, particularly payments infrastructure
- declining crypto funding in the wake of sector challenges, combined with increasing focus on broader blockchain solutions
- rapidly growing interest in potential use cases for generative AI, particularly in cybersecurity, insurtech, and wealthtech.
Heading into the second half of 2023, market challenges are expected to continue – which could make for another bumpy 6 months. AI is expected to be a hot topic of conversation – and likely funding – even if fintech activity remains subdued. As the market begins to stabilise, however, funding in fintech will likely perk up. Payments, in particular, is well positioned to see funding continue and accelerate, in addition to insurtech and wealthtech. Should market conditions improve, M&A activity could also start to climb again as PE investors and corporates look for good deals.
Whether you’re the CEO of a large financial institution or the founder of an emerging fintech, it’s critical to consider how your company can grow sustainably and profitably even in these uncertain times.
As you read this edition of Pulse of Fintech, ask yourself:
How can we position our organisation to weather today’s storms while positioning for long-term success?
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Australian fintech investment trends
The first half of 2023 saw a continued deterioration regarding both deal value and deal count within the Australian fintech sector.
The total number of deals closed in H1’23 was 43, for a total deal value of US$224 million – the lowest amount registered for the first half of the year since 2015.
The deal count is down 19 percent compared to the second half of calendar year 2022, while the deal value of the transactions that took place in H1’23 is down approximately 49 percent on the previous half of the year.
Given the challenging market conditions – including the high interest rate environment, inflationary pressures, broader slowdown of the economy, and a substantial shift in market sentiment amongst investors – these results come as no surprise.
KPMG Australia's Head of Fintech, Dan Teper said: "In H1’23 we saw a continuation of the broader market themes highlighted throughout 2022, with both deal volumes and values significantly down in the first half of the year. This trend has emerged as a result of harder economic market conditions and a material shift in investor sentiment, especially in the startup and scale-up community, where a near-term route to self-sustaining profitability is increasingly a leading requirement rather than a nice-to-have."
"Fintech investments have in fact dropped in the list of priorities for investors, with additional challenges coming from inflationary pressures and a high rates environment. These factors have contributed to creating a harsh capital raising environment and a difficult market to navigate, with the sustainability of business models coming into question."
Top fintech trends for H2 2023
During the first half of 2023, fintech funding was incredibly subdued as many investors pulled back from making major fundings in the face of myriad market challenges, notably high interest rates fundamentally challenging existing business models exacerbated by other macroeconomic challenges, geopolitical tensions, and depressed valuations. With uncertainty expected to be the status quo in the near-term, fintech funding is expected to remain subdued heading into H2’23 – although the long-term outlook for the transformation of financial services remains very positive.
Discover our top predictions for fintech in H2’23 > |
