Global fintech investment drops to 5-year low, India funding halves to $3 bn

Geopolitics conflicts, the high interest rate environment, and the barren exit environment across regions saw fintech investors holding onto their cash throughout much of the year.

Global investment in fintech sank to a five-year low of $113.7 billion across 4,547 deals in 2023 as investors pulled back from making large deals amid concerns about stubbornly high interest rates, conflicts in Ukraine and the Middle East, falling fintech valuations, and the parched exit environment, revealed a report by KPMG.

Fintech investment in India was particularly soft, falling from $6.8 billion to $3 billion between 2022 and 2023, although investment also dropped in Singapore—from US$4.5 billion to US$2.2 billion.

The Americas attracted the largest share ( 70  per cent) of investment during the year, accounting for $78.3 billion in fintech funding across 2,136 deals — of which the US took $73.5 billion across 1,734 deals — compared to $24.5 billion across 1,514 deals in the EMEA region and $10.8 billion across 882 deals in the ASPAC region.

The second half of 2023 showed a marginal gain over the first half, with total fintech investment rising from $55.5 billion in H1’23 to $58.2 billion in H2’23. Six $1 billion+ deals contributed significantly to this result. VC investment was not so fortunate — dropping from US$27.5 billion to US$18.8 billion between H1’23 and H2’23.

At a sector level, the payments space attracted the largest share of fintech investment globally ($20.7 billion)—although it was a major drop from the $58 billion seen in 2022. By comparison, proptech and ESG were very hot with investors; proptech investment reached a record high of $13.4 billion in 2023, while ESG-focused fintech investment rose from $1.2 billion to $2.3 billion year-over-year.

“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,” said Anton Ruddenklau, Global Head Fintech and Innovation, Financial Services, KPMG International. “While it was a depressed year for the fintech market overall, there were a few particularly bright lights. Proptech, ESG fintech, and investors embraced AI-focused fintechs—which helped particularly in the last six months.”

Other notable areas of investment in fintech during the year were  insurtech ($8.1 billion), crypto and blockchain (US$7.5 billion), regtech (US$2.6 billion), ESG fintech (US$2.3 billion), and cybersecurity (US$1.3 billion).

Second best year for ESG fintech investment

2023 was the second-best year for fintech investment on record, with the $2.3 billion in investment second only to 2021’s peak high of $3.7 billion. The US accounted for the largest deals in this space in 2023. The combination of ongoing regulatory changes and the ambitious net zero commitments by both governments and businesses will likely keep investment in ESG-focused fintech solutions on a positive trend heading into 2024.

Artificial intelligence a key priority for investors

Interest in AI gathered a lot of steam across the investment market over the course of 2023, and the fintech market was no exception. AI-driven fintech companies accounted for $12.1 billion in investment in 2023. While this reflects a significant decline in funding compared to the US$28.1 billion seen in 2022, the decline in investment does not reflect any lessening of interest in the space; during 2023, many financial institutions and fintechs chose to embrace AI through alliances and product spend rather than through direct investment.

Fintech investment in the Asia-Pacific region falls by more than 75%

It was an incredibly soft year for fintech investment in the ASPAC region, with only $10.8 billion of investment across 882 deals in 2023—down from US$51.3 billion in investment in 2022—although the 2022 numbers were buoyed by the US$29 billion acquisition of Australia-based Afterpay.

Fintech investment in India was particularly soft, falling from US$6.8 billion to US$3 billion between 2022 and 2023, although investment also dropped in Singapore—from US$4.5 billion to US$2.2 billion.

Fintech investment in China rose year-over-year—from a ten-year low of US$800 million to US$1.9 billion. VC investment in the ASPAC region dropped from US$15.4 billion in 2022 to US$7.8 billion in 2023. Of this, corporates participated in US$4.1 billion of deals.

H2’23 was slightly slower in ASPAC, with fintechs attracting $3.4 billion in investment. VC raises accounted for the vast majority of investment in H2’23, including by Hong Kong (SAR), China-based Micro Connect (US$458 million) and Singapore-based boltech ($246 million)), India-based Perfios (US$229 million), and Japan-based Gojo & Company (US$110.6 million).

Trends to watch for in H1’24

• Growing optimism across the fintech sector as interest rates start to stabilize and valuations normalize.

• Strengthening interest in M&A opportunities, with investors increasingly looking at distressed assets.

• The payments sector remaining the hottest ticket in fintech, with increasing consolidation as companies look to scale and grow locally,

regionally and globally.

• AI continuing to be a major focus of companies across the fintech sector.

• The UAE continuing to evolve into a regional fintech hub, attracting additional attention from global investors and larger deal sizes.

Here are the top ten global fintech deals of 2023