Fintech funding activity in the Asia Pacific (ASPAC) region has ground to a near halt over the six months to June this year, dropping to a decade low of $5.1 billion across 432 deals – down from a high-water mark of more than $45 billion a year earlier.
This half-yearly drop also represents a 25 per cent decline in funding activity (which collectively accounts for venture capital, private equity and mergers and acquisitions activity) from the H2’22 period, which hit $6.8 billion across 583 deals, according to KPMG’s latest Pulse of Fintech H1’23 report.
KPMG blamed the slump on jittery investors pulling back after the post-Covid sugar rush, on account of “notably high interest rates” that have been “exacerbated by other macroeconomic challenges, geopolitical tensions, and depressed valuations”.
While it predicts the latter half of 2023 to remain “subdued”, the consultancy is more sanguine on the long-term outlook of the fintech-driven “transformation of financial services”.
It added, however, that investors will become increasingly picky with their fintech investments, with “the days of major funding in structurally unprofitable companies” having passed.
“Fintech investors will increasingly prioritise companies able to demonstrate top-line revenue growth, a strong grasp of unit economics and shorter paths to profitability.”
Following global trends, KPMG noted, financial services’ interest in AI has gained considerably in the ASPAC region, particularly in leveraging AI Generated Content (AIGC) – backed by Large Language Models (LLMs) – for marketing and customer engagement.
Globally, the Americas was the only major region where fintech funding grew over the last year (from $28.9 billion in H2’22 to $36 billion in H1’23), with funding in the two other key regions (namely, EMEA and ASPAC) declining significantly. In EMEA, the value of fintech funding dropped by nearly half, from $27.3 billion across 963 deals in H2’22 to $11.2 billion across 702 deals in H1’23.
Globally, 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,” KPMG wrote in its report, “with just under $18 billion invested globally — the lowest level of fintech funding seen since Q3’17.”
While no Australian fintech deal made the top 10 of the ASPAC region – which were largely dominated by up-and-coming players in India and Mainland China (including the $1.5 billion capital raise by the China-based Chongqing Ant Consumer Finance) – Aussie BaaS-specialist regtech Constantinople’s $21 million seed round did account for the largest regtech deal of H1’23.
Nevertheless, global funding activity in the regtech sector has plummeted, with the record high of $20.9 billion across 369 deals in the 2022 calendar year very unlikely to be reached this year.
So far this year, regtechs, globally, have generated just $1.1 billion of activity across 121 deals.
A similar, though less dramatic, funding drop was also witnessed in the global paytech sector, reaching $16.2 billion across 243 separate deals this half. Paytechs last year secured $56.3 billion across 878 deals.
The insurtech sector, however, is bouncing back after a dramatic 50 per cent drop-off last year. Already this year, insurtechs have reached nearly four-fifths (at $4.7 billion) of last year’s entire funding activity total of $6 billion. However, this is still significantly down on the $15.6 billion reached in 2020 (with much of this fall due to public listings of insurtechs that have since “not fared well” in the market).
KPMG noted a continued strong demand from the insurance sector, particularly from general insurers, for risk prevention capabilities and technologies.
Cybersecurity-focused fintech funding globally remained strong in H1’23 — “on pace to surpass 2022 totals”, KPMG said, although the level of funding (currently at $900) “has remained far below 2021’s outlier record high” of $4.3 billion.
The number of deals in the cybersecurity space was substantially lower in H1’23 compared to H2’22 (down from 82 to just 25 this half), the consultancy noted, “likely reflecting the desire of PE and VC investors prioritising a smaller number of more certain bets”.
“In H1’23, investors in the cybersecurity space continued to their focus significantly on AI, prioritising bigger plays focused on amping up bigger platforms to incorporate AI-based cybersecurity tools and technologies,” the report said. “This trend has accelerated quite a bit since late 2022, with anything to do with security automation high on the radar of potential investors.”
Following the crypto craze of 2021-22, crypto and blockchain space funding fell dramatically in H1’23; however, funding levels remain on par with 2020 results.
“Like the tech sector more broadly, the crypto and blockchain space saw investors pulling back in the wake of growing economic uncertainty, including ongoing concerns about a potential recession, high interest rates, and the significant pressure on valuations.”
KPMG notes that Singapore in particular “is seen as a strong forerunner” in the crypto space, given it already has regulations in place, including its Payment Services Act and its Digital Token Payment Act, and is in the process of issuing regulations related to stablecoin issuances.