The first half of 2023 was a tough time for the global fintech Fintech Financial Technology (fintech) is defined as ay technology that is geared towards automating and enhancing the delivery and application of financial services. The origin of the term fintechs can be traced back to the 1990s where it was primarily used as a back-end system technology for renowned financial institutions. However, it has since grown outside the business sector with an increased focus upon consumer services.What Purpose Do Fintechs Serve?The main purpose of fintechs would be to suppl Financial Technology (fintech) is defined as ay technology that is geared towards automating and enhancing the delivery and application of financial services. The origin of the term fintechs can be traced back to the 1990s where it was primarily used as a back-end system technology for renowned financial institutions. However, it has since grown outside the business sector with an increased focus upon consumer services.What Purpose Do Fintechs Serve?The main purpose of fintechs would be to suppl Read this Term market, most notably for the European fintech industry, which saw funding shrink by more than half compared to the preceding period. This coincides with an overall decrease in global fintech funding, highlighting the adverse effects of various geopolitical and macroeconomic challenges for the sector.

Fintech Funding Falls $11 Billion

In H2 2022, fintech funding stood at $63.2 billion across 2,885 deals. However, H1 2023 experienced a plunge falling to $52.4 billion across 2,153 deals, according to the Pulse of Fintech report produced by KPMG. These figures indicate a significant contraction in total funding and deal volume.

Conversely, the Americas demonstrated resilience, increasing fintech funding from $28.9 billion to $36.1 billion, despite a drop in deal volume. On the other hand, the EMEA region experienced the most substantial dip, with funding plummeting over 50%, from $27.3 billion across 963 deals in H2 2022 to $11.2 billion across 702 deals in H1 2023. The APAC region also witnessed a downward trend, with fintech funding decreasing from $6.8 billion across 583 deals to $5.1 billion across 432 deals.

Rising interest rates, high inflation, geopolitical tension, and tech sector devaluation all contributed to this pervasive uncertainty in the market. The collapse of several US banks in early 2023 likely further fueled this investor's hesitance.

"The entire tech sector is experiencing fierce headwinds at the moment — and fintech is no different," Judd Caplain, the Global Head of Financial Services at KPMG International, commented. "The combination of macroeconomic forces like high inflation and rapidly rising interest rates, combined with fintech-specific challenges saw investors being a lot more conservative with their funding."

This data is confirmed by another report published in early July by Innovative Finance. According to the company's calculations, the total capital investment of $27.3 billion across 1,714 deals marks a drop of 14% from H2 2022. Globally, funding in the financial technology sector slid by 30% to $95 billion during this year.

In other regions of the world, fintech is doing well. Investment directed to the fintech sector in the Association of Southeast Asian Nations (ASEAN) rose to $4.3 billion in the first nine months of 2022. This amount is higher than the total investment in the sector between 2018 and 2020.

Sectors Bucking the Trend

Despite the general downturn, certain sectors showed promise. "Funding influx was witnessed in supply chain and logistics-focused fintechs, and green fintech, with $8.2 billion and $1.7 billion, respectively in H1 2023. These figures surpassed their previous records," Caplain added.

Despite the current financial headwinds, the long-term business cases for many fintech subsectors remain strong. Sectors like payments Payments One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl Read this Term, insurtech, and wealthtech are expected to bounce back once market conditions stabilize.

However, the future of fintech funding is unpredictable due to ongoing geopolitical and macroeconomic uncertainties. KPMG suggests that artificial intelligence, particularly generative AI, may become a prospective area to buck the trend.

"Generative AI is drawing considerable interest and funding, especially in areas like cybersecurity, regtech, and wealthtech. As corporations seek to leverage generative AI effectively, we anticipate an uptick in investor interest in the coming months," Anton Ruddenklau, the Global Fintech Leader at KPMG, concluded.