Global fintech investment falls to $164.1 billion following record 2021
Third best year of fintech investment despite large drop from 2021 high
Following 2021’s record high level of total global fintech investment ($238.9 billion) and deal volume (7,321), 2022 saw both total investment and deal volume fall — to $164.1 billion and 6,006, respectively. While low by comparison, it was the third best year for fintech investment ever and the second best year for deal volume.
Fintech investment drops by more than 50 percent in H2’22 compared to H1’22
Global fintech investment in H2’22 was $44.9 billion compared to the $119.2 billion seen in the first half of the year. The more than 50% decline highlights the impact of the sharp drop-off in large deals. H1’22 saw eight M&A deals greater than $1 billion — including the $27.9 billion acquisition of Australia-based Afterpay, two VC raises (Germany-based Trade Republic, UK-based Checkout.com) and one PE deal (US-based Genesis Digital Assets) globally. H2’22 saw just four M&A deals over the same amount — the largest being the $8.4 billion buyout of US-based Avalara. The largest VC raise of H2’22 was the $800 million raise by Sweden-based Klarna — which took a large cut to its valuation, while the largest PE deal was a $250 million raise by US-based Avant.
Fintech investment inches to new high in Asia, while declining in the Americas and Europe
On a regional basis, the Americas continued to account for the largest share of fintech investment globally, attracting $68.6 billion across 2,786 deals in 2022 — of which the US accounted for $61.6 billion across 2,222 deals. Comparatively, the Asia-Pacific region saw $50.5 billion in fintech investment across 1,227 deals, while the EMEA region attracted $44.9 billion across 1,977 deals. While both the Americas and Europe saw fintech investment decline, the Asia-Pacific region slightly surpassed 2021’s peak high on the back of Afterpay acquisition.
Investors prioritize profitability and cash flow as macroeconomic factors erode and valuations decline
At mid-year, investment in the fintech sector globally had only just begun to feel the impact of geopolitical uncertainty, rising interest rates and inflation, the downward pressure on valuations, and IPO market drying up. In H2’22, fintech investment generally followed general tech investment trends, with investors pulling back on many large and latestage deals and taking more time to conduct deals. As the IPO market dried up almost completely, reducing the opportunity for exits considerably, fintech investors globally also enhanced their focus on the cash flow and profitability of their existing portfolio companies.
Regtech bucks downward trend, attracts record $18.6 billion in investment
The regtech space was a bright light of fintech investment in 2022, attracting a new high of $18.6 billion in investment — well above the previous record of $12.1 billion seen in 2021. Regtech attracted two of the three largest fintech deals of H2’22, including Vista Equity Partners’ buyout of Avalara ($8.4 billion) and the buyout of Computer Services Inc by Centerbridge Partners and Bridgeport Partners for $1.6 billion. Given the complex regulatory environment for financial services globally and the growing focus on profitability and cost-cutting, regtech investment is expected to keep growing as companies look to technology to streamline and improve their compliance activities.
Investors upping the ante on due diligence in wake of crypto sector challenges
Crypto sector investments globally plunged significantly in H2’22 following the Terra (Luna) crash in May. Given the FTX bankruptcy in November, it is likely that investment in crypto-focused firms will remain very slow into H1’23 as many investors work to review and significantly enhance their due diligence and governance processes related to investments in the crypto space. There could also be a shift in investment to jurisdictions with stronger regulatory frameworks for crypto activities.
Trends to watch for in H1’23
- Regtech continuing to gain steam in the eyes of investors
- Increasing investment focusing on fintech solutions that align with ESG and climate change priorities and targets
- Seed and early-stage companies continuing to draw attention, investment, and larger deal sizes IPO and M&A activity remaining soft well into H1’23 as valuations continue to face downward pressure
- Blockchain solutions outside of the crypto space gaining increasing attention from investors
- Growing focus and investment in the B2B and embedded solutions space, including embedded finance, embedded payments and embedded insurance.
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Source for chart: Pulse of Fintech H2'22, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of December 31 2022.