Calendar year 2023 was a difficult year for the fintech market worldwide, with both total fintech investment (USD 113.7 billion) and the number of fintech deals (4,547) experiencing their weakest results since 2017.
A recent report by KPMG highlighted that fintech funding worldwide fell to a five-year low in 2023. Fintech investment worldwide grew slightly between the first and second half of the year, increasing from USD 55.5 billion in H1’23 to USD 58.2 billion in H2. ’23.
Six USD 1 billion plus deals helped propel H2’23 results, including Intercontinental Exchange’s USD 11.7 billion acquisition of US-based Black Knight, Nasdaq’s USD 10.5 billion acquisition of US-based Adenza, USD 6.9 -billion UK PE acquisition. -based Finastra, US-based Avantax’s USD 1.2 billion buyout of Cetera, California-based Generate’s USD 1 billion VC acquisition and Visa’s USD 1 billion acquisition of Brazil-based Pismo.
Global VC investment in fintech decreased dramatically, both year-on-year – from USD 88.8 billion in 2022 to USD 46.3 billion in 2023 – and between H1’23 (USD 27.5 billion) and H2’23 (USD 18.8 billion), the report emphasized. .
While VC investment declined across all deal phases, investment in later-stage deals fell off a cliff—falling from USD 37.4 billion in 2022 to USD 14.1 billion in 2023. While VC deal economics changed dramatically over the year, VC investors. worldwide continued to show interest in a number of areas, most notably AI-focused fintech solutions.
AI – focus area for Investors
AI has been a very strong area of focus for investors in the fintech market, with many companies looking for ways to incorporate AI into related product and service offerings – especially those related to cybersecurity and regtech. During the year, AI-focused fintech companies attracted USD 12.1 billion in investment, the report revealed.
The decline in direct AI funding year over year is somewhat misleading as many financial institutions and fintechs are embracing AI through alliances and product spending.
The payments sector remains the hottest ticket in fintech, with increasing consolidation as companies look to scale and grow locally, regionally and globally, the report added.
The enormous interest in AI and generative AI across sectors is likely to permeate the fintech market, with accelerating interest in finding ways to leverage AI opportunities to their fullest extent.
This interest may not translate into direct investment as fintech market participants embrace AI through alliances and product spending. Key direct investment opportunities are likely to focus on the cyber security and regtech spaces, the report highlighted.