KPMG: Global Fintech Investment Dipped by 42% to $114bn in 2023

Ndubuisi Francis in Abuja

Global investment in fintech nosedived in 2023, plunging to a five-year low of $113.7 billion from 4547 deals, international audit, tax and advisory services firm, KPMG has stated.

This marked a 42 per cent decline from the $196.3 billion reported in 2022 and represented the weakest result since 2017, according to KPMG’s Pulse of Fintech report.

According to the report, interest rates and inflation combined with geopolitical tension to sabotage investor confidence.

It explained that a combination of global challenges, including high interest rates and persistent inflation in various regions, as well as conflicts in Ukraine and the Middle East, coupled with declining valuations and a subdued exit landscape, led to a growing sense of caution among fintech investors.

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, both 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).

While all deal stages were affected, later-stage deals dropped from $37.4 billion in 2022 to $14.1billion in 2023.

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.

Fintech funding in the payments space, although reduced from $57.9 billion to $20.7 billion, continued to account for the largest share.

Despite increasing enthusiasm for artificial intelligence technology, global fintech AI investments also saw a year-on-year decline, dropping from $28.1 billion to $12.1 billion.

However, this could be attributed to a move by financial institutions and fintechs to prioritise strategic alliances and product expenditures over direct investments. AI is expected to play a significant role in the future of the global fintech industry.

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 emphasised the likelihood of increased merger and acquisition activity, because investors may seek to capitalise on deeply discounted, distressed assets. Meanwhile, governments in south-east Asia, the Middle East and Africa are expected to bolster investment into their fintech ecosystems to help drive their digital economic development.

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.