Global fintech investment update
2022 was a challenging year for fintech investment globally – with the Americas in particular seeing a $40 billion drop in investment compared to 2021’s high. The decline in deal value doesn’t tell the full story, however. Deal volume was incredibly robust this year: the second highest total next to 2021. Seed deals saw record investment, which bodes well for the long-term fintech pipeline. At a sector level, regtech investment soared to a new high, while geographically, the Asia-Pacific region also hit a new peak – if by a much narrower margin.
The diversity of jurisdictions attracting significant fintech deals was also very strong. In H2’22 alone, 24 different countries attracted $100 million+ fintech deals (VC, PE, M&A) – ranging from traditional hubs like the US, UK, Singapore and Hong Kong (SAR) to less mature fintech hubs like South Korea, Luxemburg, Italy, Malaysia and the UAE. This diversity reflects the myriad value propositions offered by fintech around the world, from enabling innovation at financial institutions to supporting small business growth and improving financial inclusion and access to financial products.
Fintech investment trends
Looking across 2022 as a whole, there’s no doubt that the fintech market globally saw both highs and lows. Key trends that we've seen include:
- surging investment in regtech as companies look to technology to help them manage their increasingly complex regulatory compliance obligations
- rapidly cooling investment in cryptocurrencies and crypto exchanges between H1’22 and H2’22, with more challenges expected on the horizon
- strengthening partnerships between fintechs and incumbent financial institutions, including banks, insurance companies and wealth management firms
- decreasing number of large deals in H2’22 compared to 2021 and H1’22 as investors waited for valuations to stabilise.
With the word recession being used more and more, the IPO window still closed and the valuations of late-stage companies still under pressure, there could be a bumpy road ahead as we enter 2023. But there continues to be money in the fintech market globally. Fintechs that have strong value propositions and that can really show the viability and sustained profitability of their business models will likely continue to attract attention – particularly in sectors like regtech and cybersecurity.
Longer term, we believe the outlook for fintech investment remains quite positive given the ongoing transformation of financial services around the world and the strengthening focus on embedding financial services into other sectors.
Whether you’re the CEO of a large financial institution or the founder of an emerging fintech, focusing on getting the most from every dollar you invest can help you forge a strong path forward.
As you read this edition of Pulse of Fintech, ask yourself:
What do we need to do to become more resilient as an organisation and how can we use our strengths to create unique value for our customers, clients and investors?
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Australian fintech investment trends
H2’22 confirmed both the downward trends and the early signs of deteriorating market conditions shown in the first half of the year. Deal count over the period was down approximately 38 percent and the total deal value is down more than 70 percent, when compared to the first half of the year.
Total investments in the fintech sector have fallen from US$1.8 billion in H1’22 to US$478 million in H2’22 (excluding the Afterpay transaction). The datapoints highlighted are indicative of the changing macroeconomic conditions that fintech firms are currently facing, with the increase in cost of capital and difficulty in accessing investor funding being the key challenges.
As such, we are approaching what we expect to be a period of moderate growth for the ecosystem, as many Australian fintechs and indeed businesses throughout the economy look to reduce their overheads and headcount to preserve capital. In order to weather the storm, fintech founders will have to lower their burn rate and design a clear strategy to achieve profitability.
KPMG Australia Head of Fintech, Dan Teper said: "Over the past few years, we have seen a wave of capital lift the Australian fintech environment – helping to drive mass innovation and create a thriving and vibrant ecosystem of active startups, scaleups and mature businesses."
"As market conditions continue to shift, we expect to see some rationalisation in the market as capital flows correct and some businesses struggle to attract the funding they need to reach their full potential. This in turn could lead to both pro-active and opportunistic M&A activity in the coming years."
"Regardless, the success of Afterpay and others, combined with the ongoing opportunities to innovate in financial services, mean that fintech opportunities and investment will continue to be supported, even if we don’t match the record levels of previous years."
An overview of Asia Pacific fintech investment trends and insights for the second half of 2022.
An overview of Asia Pacific fintech investment trends for the second half of 2022.
Top fintech trends for H1 2023
With little sign that the challenging market conditions will begin to alleviate as we head into H1’23, fintech investment is expected to remain relatively subdued, even compared to H2’22 – although a number of fintech subsectors are expected to be more resilient than others.
Discover our top predictions for fintech in H1’23 >