Key Trends
(1) Investors shift to non-crypto blockchain-based solutions
Global investments in crypto and blockchain fell to US$23.1 billion in 2022 from US$30 billion in 2021. The decline was particularly noticeable in the second half of the year as investor sentiment related to the consumer crypto space and crypto exchanges plummeted following the Terra (Luna) crash in late H1’22 and the bankruptcy of crypto hedge company Three Arrows Capital in July. In Singapore, cryptocurrency and blockchain funding in Singapore also declined 21 percent from US$1.5 billion in 2021 to US$1.2 billion in 2022.
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.
With consumer crypto offerings losing their lustre, investors have started to turn their attention to broader blockchain-based solutions and value propositions. This includes investing in blockchain-based technologies that underpin solutions to real-world problems, such as conducting real-time payment settlement pre-validation, streamlining cross-border payments and tokenising assets.
One trend seen in 2022 that is expected to grow heading into 2023 is the shift of investors from blockchain companies focused on the retail market to startups focused on providing solutions for the SME market. One area increasingly attracting attention is the provision of SME-focused decentralised finance (DeFi) solutions, including solutions focused on SME loan financing or trade financing.
(2) Payments remains a hot space in the fintech market
Globally, payments remain the strongest area of fintech investment in 2022, with US$53.1 billion in investment compared to US$57.1 billion in 2021. In Singapore, funding for payments rose 57 percent from US$628.4 million in 2021 to US$984.8 million in 2022.
A popular source of alternate financing, Buy Now Pay Later (BNPL), continues to drive interest despite valuation and regulatory challenges faced by firms. With inflation high and interest rates rising, BNPL companies will likely continue to have their margins challenged. Despite the challenges faced by some standalone BNPL firms, there continued to be momentum in the space, particularly on the part of corporates looking to embed or create their own BNPL offerings.
Interest in embedded payments also continued to grow during 2022, spanning a wide variety of sectors — from retail and e-commerce to gaming and ride-hailing. Corporates showed particular interest in the space, likely as a means to extend their customer value.
(3) Cost of compliance remains key driver of regtech interest
The regtech space was a bright light of fintech investment in 2022, attracting a new high of US$18.6 billion in investment — well above the previous record of US$12.1 billion seen in 2021.
The ever-increasing cost of compliance is a major challenge for financial services companies everywhere in the world, with multinational companies particularly challenged to manage their compliance across multiple jurisdictions. With no end in sight to regulatory change both globally and in individual jurisdictions, it’s not surprising that regtech investment climbed for the fourth year in a row during 2022 as investors and corporates embraced regtechs able to provide simpler, cost-efficient and sustainable solutions for managing compliance requirements.
The growth of digital banking, digital payments and crypto in different jurisdictions over the last few years has driven significant investment in regtech aimed at ensuring that such transactions are accurate, transparent, reliable and compliant. Recently, investors have shown very strong interest in companies able to provide multi-dimensional services. For example, in 2022, US-based Cross River Bank raised $620 million in PE funding to grow its fintech-focused compliance offerings, aimed at enabling a broad range of financial services activities, including payments, marketplace lending, banking-as-a-service platforms, capital-markets, and other digital banking activities.
That said, Singapore may have some way to go to attract fintech investments in this space. Locally, there was a 5 percent decline in Regtech deal value to US63.30 million in 2022, from $66.63 million in 2021.
(4) Expanding access to a broader base of investors
The wealthtech sector globally attracted over $1.2 billion in total investment during 2022 — a very strong year, despite the decline from 2021’s investment peak of $2 billion. Singapore also experienced a wealthtech sector rally attracting US$500 million in fintech investments in 2022, up from US$29.60 million in 2021. H2’22 saw the two largest wealthtech deals of the year, including the $323 million acquisition of UK-based Pollen Street Capital and the $300 million raise by Singapore-based crypto firm Amber.
This comes as a growing number of wealthtechs have, over the past year, focused on developing solutions able to give a broader base of investors unique access to asset classes that have typically only been used by institutional or high net worth investors – such platforms are able to cost-effectively facilitate fractional investments which traditionally had a high minimum investment.
Recognising that investors today have a wealth of information at their fingertips, both traditional wealth management firms and wealthtechs have been grappling with ways to enhance the value they provide to their clients and to build deeper relationships to help with retention. This has led to increasing interest and investment in solutions intended to improve the wealth management experience.
