Global Investment in Fintech Plummets to A Five-Year Low, Reaching $113.7 Billion Across 4,547 Deals in 2023 – KPMG Report
According to a KPMG report, global investment in fintech plummeted to a five-year low in 2023, totaling $113.7 billion across 4,547. Concerns over persistently high interest rates, geopolitical conflicts, declining fintech valuations, and challenging exit prospects led investors to scale back on larger deals.
The Americas attracted the lion’s share of investment, with $78.3 billion poured into fintech across 2,136 deals. Within the region, the United States dominated, securing $73.5 billion across 1,734 deals. In contrast, the Europe, Middle East, and Africa (EMEA) region received $24.5 billion across 1,514 deals, while the Asia Pacific region attracted $10.8 billion across 882 deals.
Despite the overall decline, global fintech investment saw a slight uptick in the second half of the year, reaching $58.2 billion compared to $55.5 billion in the first half. This growth was bolstered by six deals exceeding $1 billion each, including notable acquisitions and equity raises.
Venture capital investment in fintech witnessed a significant drop from $88.8 billion in 2022 to $46.3 billion in 2023, with a particularly steep decline in later-stage deals, falling from $37.4 billion to $14.1 billion.
Nevertheless, venture capital investors remained interested in various sectors, particularly AI-focused fintech solutions. Payments retained its position as the leading area of fintech investment, securing $20.7 billion. Proptech also saw a surge in funding, reaching over $13.4 billion, driven by significant acquisitions and growing investor interest in property management and ESG considerations.
Other notable sectors attracting investment included Insurtech ($8.1 billion), crypto and blockchain ($7.5 billion), Regtech ($2.6 billion), ESG fintech ($2.3 billion), and cybersecurity ($1.3 billion).
Global Head Fintech and Innovation, financial services, KPMG International Anton Ruddenklau said,
“The fintech market floundered somewhat in 2023, buffeted by many of the same issues challenging the broader investment climate. While there were still good deals to be had, investors were definitely sharpening their pencils—enhancing their focus on profitability. While it was a depressed year for the fintech market overall, there were a few particularly bright lights. Proptech, environmental, social, and corporate governance (ESG) fintech, and investors embraced AI-focused fintechs—which helped particularly in the last six months”.
The AI subsector of global fintech investments experienced a significant slowdown, plummeting from $28.1 billion in 2022 to a mere $12.1 billion in 2023. However, this apparent decline in direct investment doesn’t indicate waning interest in AI. Instead, numerous financial institutions and fintech firms worldwide opted for strategic partnerships and product development expenditures, leveraging the potential of AI without direct investment.
Amid ongoing global conflicts, a high-interest rate environment, and persistent exit challenges, global fintech investment is anticipated to remain subdued in the first quarter of 2024.
As interest rates stabilize, and possibly decrease, investment activity may gradually pick up. AI and business-to-business (B2B) solutions are likely to continue attracting significant investor attention. Moreover, M&A activity could see a resurgence as investors explore distressed assets more earnestly.
