Global fintech funding falls to $52 billion as headwinds persist
Global funding in fintech declines despite solid increase in Americas
Global funding fell from $63.2 billion across 2,885 deals in H2’22 to $52.4 billion across 2,153 deals in H1’23. Q2’23 results were particularly soft, with just under $18 billion invested globally — the lowest level of fintech funding seen since Q3’17. While fintech funding rose in the Americas, from $28.9 billion across 1,323 in H2’22 to $36 billion across 1,011 deals in H1’23 (including $34.9 billion across 809 deals in the US), funding in the other key regions declined significantly. In the EMEA region, fintech funding dropped from $27.3 billion across 963 deals in H2’22 to $11.2 billion across 702 deals in H1’23, while in the ASPAC region it dropped from $6.7 billion across 583 deals to $5.1 billion across 432 deals.
Fintechs focusing on improving efficiencies as investors hold back amid market uncertainty
The fintech market globally was very slow in H1’23 as many investors held back from allocating capital given the breadth of headwinds. As inflation remained high, interest rates continued to climb, exits remained illusive, and start-up valuations saw significant downward pressure, investors enhanced their due diligence processes and put a laser focus on sustainability and profitable business models. With funding less certain and the cost of debt rising, many fintechs also tightened their belts — focusing on improving their operating performance and cash flows in order to make it through the downturn and better attract investors.
US accounts for two-thirds of fintech funding in H1’23; attracts five of the seven $1 billion+ deals
The US proved very resilient in the first half of the year, attracting $34.9 billion in fintech funding — just over two-thirds of all funding seen globally — including five of the seven $1 billion+ deals of H1’23 (i.e. the $8 billion buyout of Coupa by Thomas Bravo, the $6.8 billion VC raise by Stripe, and the $4 billion acquisition of EVO payments by Global Payments). The EMEA region and ASPAC regions each saw one $1 billion+ deal during H1’23: In EMEA, UK-based energy insights platform company Wood Mackenzie was acquired by Veritas Capital for $3.1 billion, while in ASPAC, China-based Chongqing Ant Consumer Finance raised $1.5 billion.
Payments sector remains biggest fintech ticket, attracts over $16 billion in investment in H1’23
The payments sector attracted the largest share of fintech funding in the first half of 2023, including the three largest deals globally. The sector remained quite attractive in all regions of the world given the perceived resilience of payments models. Within the payments space, however, there was a strong pullback away from BNPL models as investors focused their fundings on more mature, core banking platforms with strong applicability in all economic conditions. Globally, the payments space also saw some M&A activity as companies looked at acquisitions as a mechanism to achieve scale and power expansion activities.
AI and generative AI the talk of H1’23 — poised to drive funding heading into H2’23
Both AI and generative AI attracted a significant amount of attention in H1’23, with both traditional investors and corporates showing keen interest in applications within the fintech space. In H1’23, the big tech giants drove the most visible activity in the generative AI space —particularly in the cybersecurity sector with Microsoft’s launch of Security Copilot and Google’s announcement of its Security AI Workbench.1 Interest in AI and generative AI-driven solutions is only expected to accelerate heading into H2’23; in addition to cybersecurity solutions, both wealth management and insurance applications will likely be high on the radar of fintech investors.
Trends to watch for in H2’23
- Strong acceleration in interest and funding in AI solutions aimed at fintech subverticals, particularly cybersecurity, wealthtech, and insurtech.
- Additional take-private deals in the insurtech space should public market performance continue to be suboptimal.
- Continued consolidation in the payments space, not only globally but also within jurisdictions and regionally.
- Increasing focus on B2B-focused one-stop shop platforms and on B2C single-interface super apps aimed at consumers in emerging markets.
- Democratization of access to a variety of asset classes through fractionalized funding solutions.
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Key Contact
Anton Ruddenklau
Global Head of Financial Services Innovation and Fintech, KPMG International
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Judd Caplain
Global Head of Financial Services, KPMG International
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1 https://www.prnewswire.com/news-releases/google-cloud-announces-new-security-ai-workbench-and-ecosystem-expansion-at-rsac-2023-301804984.html