- Singapore fintech investments bucked global trend, up 22 percent to US$4.1 billion in 2022, from US$3.4 billion the previous year. Top three investment areas in Singapore were Crypto/Blockchain, Payments and Wealthtech.
- Global fintech market attracts U$164.1 billion across 6,006 deals in 2022 – a strong showing despite falling from the high of US$238.9 billion seen in 2021. Top three fintech investment areas globally are Payments, Crypto/Blockchain and Regtech.
- Investors have turned to investing in non-crypto blockchain innovations after the Terra (Luna) crash and bankruptcies of Three-Arrows and FTX
SINGAPORE – Media OutReach – 16 February 2023 – Overall fintech investments in Singapore saw a year-on-year rise, hitting a three-year-high of US$4.1 billion across 250 deals in mergers & acquisitions (M&A), private equity (PE), and venture capital (VC) in 2022, according to the KPMG Pulse of Fintech H2’22. 2022’s total deal value here saw a 22 percent increase, up from US$3.4 billion in 2021, and a 75 percent increase from 2020’s total deal value of US$2.3 billion. The 2022 figure is also the second highest fintech investment achieved by Singapore in the past decade, after investments peaked at US$5.62 billion in 2019 just before Covid-19.
Singapore’s 2022 positive showing comes against the backdrop of falling global fintech investment. After reaching a record US$238.9 billion across 7,321 deals in 2021, total global fintech investment across M&A, PE, and VC dropped to US$164.1 billion across 6,006 deals in 2022. While results were substantially lower compared to 2021’s peak highs for the world, 2022 was not a poor year as a whole. In fact, it was the third best year for global fintech investment and the second strongest year for global deal volume in the past decade.
Globally, the top three areas for fintech investment in 2022 were Payments, followed by Crypto/Blockchain and finally RegTech. In Singapore, these top three areas of fintech investment were Crypto/Blockchain, followed by Payments and finally WealthTech.
Regionally, the Americas remained the dominant force of fintech investment globally, accounting for US$68.6 billion in investment in 2022; the US accounted for US$61.6 billion of this total. The Asia-Pacific region reached a marginal new high of US$50.5 billion during 2022, while the EMEA region attracted US$44.9 billion. While the payments space attracted the largest share of fintech funding in 2022 (US$53.1 billion), Regtech was the hottest sector of the year, with investment rising from US$11.8 billion in 2021 to US$18.6 billion in 2022.
“2022 was a tale of two fintech markets. The variance between the first half of the year and the second highlights the rapid shift in investor sentiment amidst a combination of challenges—high inflation and rising interest rates, the lack of IPO exits, the downward pressure on valuations, and, of course, the turbulence in the crypto space,” said Anton Ruddenklau, Global Head of Financial Services Innovation and Fintech, KPMG International. “But the news wasn’t all negative. Regtech, in particular, saw incredible investment in 2022, while seed-stage deals received excellent attention from investors after years of late-stage deals getting priority.”
KEY TRENDS
- Investors shift to non-crypto blockchain-based solutions
Global investments in crypto and blockchain fell to US$23.1 billion in 2022 from US$30 billion in 2021. The decline was particularly noticeable in the second half of the year as investor sentiment related to the consumer crypto space and crypto exchanges plummeted following the Terra (Luna) crash in late H1’22 and the bankruptcy of crypto hedge company Three Arrows Capital in July. In Singapore, cryptocurrency and blockchain funding in Singapore also declined 21 percent from US$1.5 billion in 2021 to US$1.2 billion in 2022.
Given the FTX bankruptcy in November, it is likely that investment in crypto-focused firms will remain very slow into H1’23 as many investors work to review and significantly enhance their due diligence and governance processes related to investments in the crypto space. There could also be a shift in investment to jurisdictions with stronger regulatory frameworks for crypto activities.
With consumer crypto offerings losing their lustre, investors have started to turn their attention to broader blockchain-based solutions and value propositions. This includes investing in blockchain-based technologies that underpin solutions to real-world problems, such as conducting real-time payment settlement pre-validation, streamlining cross-border payments and tokenising assets.
One trend seen in 2022 that is expected to grow heading into 2023 is the shift of investors from blockchain companies focused on the retail market to startups focused on providing solutions for the SME market. One area increasingly attracting attention is the provision of SME-focused decentralised finance (DeFi) solutions, including solutions focused on SME loan financing or trade financing.
- Payments remains a hot space in the fintech market
Globally, payments remain the strongest area of fintech investment in 2022, with US$53.1 billion in investment compared to US$57.1 billion in 2021. In Singapore, funding for payments rose 57 percent from US$628.4 million in 2021 to US$984.8 million in 2022.
A popular source of alternate financing, Buy Now Pay Later (BNPL), continues to drive interest despite valuation and regulatory challenges faced by firms. With inflation high and interest rates rising, BNPL companies will likely continue to have their margins challenged. Despite the challenges faced by some standalone BNPL firms, there continued to be momentum in the space, particularly on the part of corporates looking to embed or create their own BNPL offerings.
Interest in embedded payments also continued to grow during 2022, spanning a wide variety of sectors — from retail and e-commerce to gaming and ride-hailing. Corporates showed particular interest in the space, likely as a means to extend their customer value.
- Cost of compliance remains key driver of regtech interest
The regtech space was a bright light of fintech investment in 2022, attracting a new high of US$18.6 billion in investment — well above the previous record of US$12.1 billion seen in 2021.
The ever-increasing cost of compliance is a major challenge for financial services companies everywhere in the world, with multinational companies particularly challenged to manage their compliance across multiple jurisdictions. With no end in sight to regulatory change both globally and in individual jurisdictions, it’s not surprising that regtech investment climbed for the fourth year in a row during 2022 as investors and corporates embraced regtechs able to provide simpler, cost-efficient and sustainable solutions for managing compliance requirements.
The growth of digital banking, digital payments and crypto in different jurisdictions over the last few years has driven significant investment in regtech aimed at ensuring that such transactions are accurate, transparent, reliable and compliant. Recently, investors have shown very strong interest in companies able to provide multi-dimensional services. For example, in 2022, US-based Cross River Bank raised $620 million in PE funding to grow its fintech-focused compliance offerings, aimed at enabling a broad range of financial services activities, including payments, marketplace lending, banking-as-a-service platforms, capital-markets, and other digital banking activities.
That said, Singapore may have some way to go to attract fintech investments in this space. Locally, there was a 5 percent decline in Regtech deal value to US63.30 million in 2022, from $66.63 million in 2021.
- Expanding access to a broader base of investors
The wealthtech sector globally attracted over $1.2 billion in total investment during 2022 — a very strong year, despite the decline from 2021’s investment peak of $2 billion. Singapore also experienced a wealthtech sector rally attracting US$500 million in fintech investments in 2022, up from US$29.60 million in 2021. H2’22 saw the two largest wealthtech deals of the year, including the $323 million acquisition of UK-based Pollen Street Capital and the $300 million raise by Singapore-based crypto firm Amber.
This comes as a growing number of wealthtechs have, over the past year, focused on developing solutions able to give a broader base of investors unique access to asset classes that have typically only been used by institutional or high net worth investors – such platforms are able to cost-effectively facilitate fractional investments which traditionally had a high minimum investment.
Recognising that investors today have a wealth of information at their fingertips, both traditional wealth management firms and wealthtechs have been grappling with ways to enhance the value they provide to their clients and to build deeper relationships to help with retention. This has led to increasing interest and investment in solutions intended to improve the wealth management experience.
GLOBAL HIGHLIGHTS
The sharp drop-off in fintech investment between H1’22 and H2’22—from US$119.2 billion to US$44.9 billion—highlights the rapidly shifting market conditions much more clearly. H1’22 saw numerous US$1 billlion+ deals, including eight M&A—including the US$27.9 billion acquisition of Australia-based Afterpay by Block, two VC raises—Germany-based Trade Republic and UK-based Checkout.com, and one PE deal—US-based Genesis Digital Assets.
H2’22 by comparison saw just three M&A deals over US$1 billion—all in the US, including the US$8.4 billion buyout of Avalara, the US$1.7 billion buyout of Billtrust, and the US$1.6 billion buyout of Computer Services Inc. The largest VC raise of H2’22 was an US$800 million raise by Sweden-based Klarna—in what was a significant rounding down (A). The largest PE deal was a US$250 million raise by US-based Avant.
- US drives fintech investment in Americas; region sees record Seed stage investment
Fintech investment in the Americas was US$68.6 billion in 2022, with the US accounting for the vast majority of this total (US$61.6 billion). By comparison, Brazil attracted US$1.8 billion and Canada attracted US$1.3 billion in fintech investment. While total investment declined year-over-year in the Americas, angel & seed-stage deals attracted a record US$4.5 billion—up from US$3.4 billion in 2021. Angel & seed-stage deals also saw the median deal size rise from US$2.4 million to US$3 million year-over-year. The Americas also saw its second strongest year of CVC-participating investment in 2022, with US$18.2 billion of investment; the US accounted for US$14.9 billion of this total.
- Fintech investment in Asia-Pacific rises to record US$50.5 billion in 2022
Fintech investment in the Asia-Pacific region climbed to a slight new record high in 2021, rising from US$50.2 billion in 2021 to US$50.5 billion in 2022. The US$27.9 billion acquisition of Australia-based buy now, pay later company Afterpay by Block in H1’22 accounted for over half of this total. The impact of the one megadeal was particularly noticeable when looking at H1’22 and H2’22 results separately—with fintech investment in H2’22 just US$5.8 billion, compared to the US$44.6 billion seen in H1’22.
As a result of the Afterpay acquisition, Australia led fintech investment in the Asia-Pacific region—with US$30.2 billion of investment. Despite a decline from 2021’s US$7.9 billion, investment in India remained robust at US$6 billion. Singapore saw fintech investment rise from US$3.4 billion to US$4.1 billion year-over-year. Fintech investment in China remained very weak in 2022 at just US$770 million.
- EMEA sees large decline in fintech funding year-over-year
Fintech investment in the EMEA region dropped from US$79 billion across 2,379 deals in 2021 to US$44.9 billion across 1,977 deals in 2022. Investment in H1’22 was far more robust than H2’22, accounting for US$32.8 billion in investment compared to US$12.1 billion. The lack of US$1 billion+ fintech deals in H2’22 accounted for much larger drop-offs—with the largest deal in H1’22 the US$3.9 billion buyout of Italy-based SIA, compared to the US$840 million buyout of UK-based Nucleus Financial Group in H2’22.
- Fintech investment likely to remain subdued heading into H1’23
With no end in sight to the macroeconomic challenges plaguing the public markets and the IPO window expected to remain closed well into the first half of 2023, fintech investment globally is expected to remain quite subdued, even compared to H2’22. While M&A activity could begin to pick up, deal sizes will likely be much smaller as investors wait for valuations of late-stage companies to settle. Regtech will likely remain one of the most resilient sections of fintech investment, in addition to B2B solutions within all fintech verticals. While investment in crypto is expected to be particularly weak in H1’23 as investors reconsider their due diligence processes and regulators consider tightening crypto regulations, the broader area of blockchain-based solutions—including institutional use cases, cross-border payments, gaming, and NFTs— will likely gain additional attention from investors.
Despite any short-term softness in the global fintech market, the long-term outlook for fintech investment remains quite positive given the ongoing transformation of financial services occurring in many different jurisdictions and the growing focus globally on embedding financial services offerings into other sectors.”
With interest rates still rising, valuations are going to remain quite tricky for some time. This will likely keep a lot of the biggest potential M&A transactions on the shelf as investors wait to see if prices come down even further,” said Anton Ruddenklau, Global Head of Financial Services Innovation and Fintech, KPMG International. “That said, M&A activity will likely increase for smaller size deals as corporates and larger fintechs look to buy fintech capabilities at good value.”
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This content was prepared by Media OutReach. The opinions expressed in this article are the author’s own and do not reflect the view of Siam News.
