26/04/23

FINTECH: Global investments fell by $75 billion last year, KPMG says.

As published on consultancy.eu, Wednesday 26 April, 2023.

Global investments in the fintech sector fell by more than 30% last year from 2021’s record high levels, according to research by KPMG.

For its Pulse of FinTech report, KPMG analysed all private equity, venture capital and merger & acquisition activity in the fintech sector worldwide. In 2021, these investments totalled $239 billion, last year that number was ‘only’ $164 billion.

The drop comes despite a solid start for the scene. In the first quarter of 2022, nearly €81 billion was pumped into fintech’s of all sorts – the second highest quarterly amount since 2019. However, investments cooled off rapidly in the following three quarters amid unfavourable macroeconomic and geopolitical developments.

The number of deals similarly dropped significantly, down from 7,321 in 2021 to 6,006 in 2022.

Despite the seemingly negative figures, KPMG’s Global Fintech Leader Anton Ruddenklau said that 2022 shouldn’t be characterised as a bad year. “Total investment was still the third highest ever, while the number of fintech deals came second only to 2021’s record high. 2022 was a particularly excellent year for regtech, with investment growing quite significantly year-over-year.”

One segment which performed particularly poor in 2022 was cryptocurrencies. Total investment in blockchain and cryptocurrencies fell from $30 billion in 2021 to $23 billion last year. This cooling of investor sentiment was reflected in the number of transactions, with only 1,500 deals last year compared to 1,800 deals the year before.

The drop in crypto was fuelled by a number of high-profile crashes and fraud cases, best exemplified by Terra (Luna), which saw its market value crash by almost 95% in 24 hours (the price of the coin dropped from $30 per unit to about $1.60). Then, in November 2022, crypto exchange FTX went bankrupt, wiping off more than $30 billion in value.

For many investors, these and other developments led them to reconsider their crypto investment strategies, with many even deciding to leave the scene.

“The call for regulation is increasing,” said Martijn Berghuijs, a partner in KPMG’s Fintech practice. “There is growing focus on regulation and compliance, and as a result, investments in the regtech segment were a bright spot amid the declining market.”

Last year, $18.6 billion was invested in regtech, a more than five-fold increase in three years. In 2021, that number was $11.8 billion, and the year previous, it stood at $10.6 billion.

The United States continues to account for the largest share of fintech investment, attracting over $60 billion across 2,222 deals last year. Across the Americas as a whole, however, investment dipped from $109 billion in 2021 to $69 billion in 2022. However, the region still enjoyed its second highest level of fintech dealmaking, with the number of transactions bettered only by 2021.

Asia-Pacific recorded a slight record high level of fintech investment last year. The amount of investment rose from $50 billion to $51 billion. However, the number of deals fell from 1,604 in 2021 to just 1,227 in 2022. This mixed picture reflects the fact that Asia-Pacific’s deal landscape was dominated by Block’s acquisition of Australian buy-now-pay-later firm Afterpay in the first half of 2022.

Finally, fintech investment in EMEA dropped from $79 billion across 2,379 deals in 2021 to $45 billion across 1,977 deals in 2022.

Looking ahead into 2023, KPMG expects to see fewer large deals during the course of this year, describing the likelihood of transactions with a value greater than $10 billion as “relatively low”.