A recent KPMG report has revealed that the global investment in Fintech plunged to a five-year low of $113.7 billion in 2023.
This reveals a 42% decline from the $196.3 billion reported in 2022, representing the weakest result since 2017.
The number of funding deals also considerably shrank, with capital being spread across a total of 3,973 deals compared to 6,397 deals seen in 2022.
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According to the report, high inflation rate, high-interest rates, and geopolitical tension, coupled with declining valuations, have forced investors to tighten their purses and have deterred their confidence from pumping money into the fintech sector.
The US retains the top spot for the most fintech funding received by a huge margin, bringing in $24 billion across 1,530 deals, followed by the UK in second place at $5.1 billion and India in third with $2.5 billion. The UK’s $5.1 billion worth of funding in 2023 was spread across 409 deals, compared to $14.6 billion across 592 deals the previous year, reflecting a 65% drop from 2022.
India occupied the third position, with the country seeing fintech investment worth $2.5 billion last year, while Singapore was fourth with $2.2 billion of funding, and China fifth with $1.8 billion. The value of the top five biggest deals globally in 2023 was over $9 billion, or about 18% of total global investment in the space.
On the other hand, the Asia-Pacific region experienced the steepest decline, with investment plunging from $51.3 billion in 2022 to $10.8 billion. Europe, the Middle East, and Africa (EMEA) also experienced a steep drop, from $49.6 billion to $24.5 billion. Investment in the Americas region showed resilience but still dropped from $95.4 billion to $78.3 billion.
Global venture capital investment slumped, year-on-year from $88.8 billion to $46.3 billion, and between the first and second half of 2023 ($27.5 billion to $18.8 billion).
Property technology and insurance technology were the only major fintech areas to experience a year-on-year increase in investment. Proptech rose from $4.1 billion to $13.4 billion, and insurtech grew from $5.9 billion to $8.1 billion. The report also found that seed and early-stage fintech funding reached record highs in terms of deal count, indicating sustained investor interest in testing new business models.
Looking ahead, investment is expected to remain low in the initial months of 2024, with a potential rebound later in the year amid expected interest rate decreases. The report also emphasized the likelihood of increased merger and acquisition activity, because investors may seek to capitalize on deeply discounted, distressed assets.
The analysis by KPMG concluded that a shift towards profitable and sustainable business models would be crucial for fintech companies to thrive in the long term.