In a difficult environment, fintech investment has fallen sharply. One sub-sector is booming.
Last year was a difficult one for the fintech industry, with global investment falling nearly a third to $164.1 from a record $238.9 billion the year before. The decline was particularly acute in the second half of the year, according to KPMG's semi-annual «Pulse of Fintech» study. While $119.2 billion was raised in the first six months, only $44.9 billion was raised in the second half of the year.
Some Bright Spots
The US remains the dominant force in fintech investment, with $61.6 billion followed by Asia-Pacific which set a record with $50.5 billion last year. EMEA attracted $44.9 billion. Overall, the payments sector received the largest slice of fintech funding with $53.1 billion.
Despite the sharp decline, 2022 was not a bleak year across the board, as some areas continued to experience growth. One particularly bright spot was regtech, which attracted a record investment of $18.6 billion, up by over half from the previous year's record of $12.1 billion. Two of the three largest fintech deals in the second half of 2022 were regtech deals.
Multiple Growth Drivers
Amidst a complex regulatory environment for financial services globally and increased focus on profitability and cost reduction, regtech products will continue to be in demand and investments are expected to grow. According to KPMG, companies are turning to technology to streamline and improve their compliance activities.
Many companies in the financial services industry are focused on reducing costs and increasing customer value, and B2B solutions will continue to be a key investment priority. Interest in AI-powered fintech solutions will also increase, particularly in areas such as AI-powered data analytics, real-time risk assessment, and customer engagement, the study found.
Climate change is a high priority for governments, businesses, and consumers. As a result, interest and investment in ESG-focused fintech solutions are expected to increase significantly.
No Pending Megadeals
KPMG does not expect any huge mergers and acquisitions in the fintech sector for the time being. Valuations are likely to remain relatively volatile in the first half of 2023, making the likelihood of mega deals valued at more than $10 billion relatively low.
M&A activity could generally increase as valuations stabilize and companies or large fintechs with deep pockets look for opportunities to acquire companies at favorable prices.
