Fintech investment in the Europe, Middle East and Africa (EMEA) region dropped sharply from $79 billion across 2,379 deals in 2021 to $44.9 billion across 1,977 deals in 2022, while globally it fell to $164.1 billion across 6,006 deals.
Investment across M&A (mergers and acquisitions), PE (private equity) and VC (venture capital) had fallen globally after reaching a record $238.9 billion across 7,321 deals in 2021, according to the Pulse of Fintech H2’22 – a bi-annual report published by KPMG highlighting global fintech investment trends.
The sharp drop-off in Fintech investment between H1’22 and H2’22 - from $119.2 billion to $44.9 billion - highlights the rapidly shifting market conditions much more clearly. H1’22 saw numerous $1 billlion+ deals, including eight M&A - including the $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 2022 fares poorly
H2’22 by comparison saw just three M&A deals over $1 billion - all in the US, including the $8.4 billion buyout of Avalara, the $1.7 billion buyout of Billtrust, and the $1.6 billion buyout of Computer Services Inc. The largest VC raise of H2’22 was an $800 million raise by Sweden-based Klarna - in what was a significant rounding down (A). The largest PE deal was a $250 million raise by US-based Avant.
In the EMEA, investment in H1’22 was far more robust than H2’22, accounting for $32.8 billion in investment compared to $12.1 billion. The lack of $1 billion + fintech deals in H2’22 accounted for much larger drop-offs - with the largest deal in H1’22 the $3.9 billion buyout of Italy-based SIA, compared to the $840 million buyout of UK-based Nucleus Financial Group in H2’22.
Investment in crypto and blockchain fell to $23.1 billion in 2022 from $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.
With consumer crypto offerings losing their lustre, investors have started to turn their attention to broader blockchain-based solutions and value propositions, including institutional use cases and GRC applications.
While results were substantially lower compared to 2021’s peak highs, 2022 was not a poor year. In fact, it was the third best year for Fintech investment ever and the second strongest year for deal volume,
2022 Key Global Highlights
•Global fintech investment was $164.1 billion across 6,006 deals in 2022 – down from the record high $238.9 billion across 7,321 deals in 2021.
•Payments remained the strongest area of fintech investment globally in 2022, with $53.1 billion in investment compared to $57.1 billion in 2021; Regtech was the only sector to buck the downward trend, with investment in the space rising from $11.8 billion in 2021 to a record $18.6 billion in 2022.
•Investment in crypto and blockchain fell from $30 billion in 2021 to $23.1 billion in 2022. The decline in the second half of the year was particularly sharp—as scrutiny in the space picked up significantly in the wake of the May Terra (Luna) crash and the November bankruptcy of FTX.
•Global M&A deal value dropped from $105.1 billion in 2021 to $73.9 billion in 2022; global VC investment declined from $122.9 billion to $80.5 billion year-over-year. PE growth investment dropped less sharply, falling from nearly $11 billion in 2021 to $9.7 billion in 2022.
•The Americas attracted $68.6 billion across 2,786 deals in 2022—of which the US accounted for $61.6 billion across 2,222 deals, while the Asia-Pacific region attracted $50.5 billion across 1,227 deals, and EMEA attracted $44.9 billion across 1,977 deals.
•Corporate-participating VC investment globally fell from $62.8 billion in 2021 to $39.6 billion in 2022.
Challenging economic conditions
Manav Prakash, Advisory Partner at KPMG in Bahrain, commented on the report findings:“The second half of 2022 was particularly challenging for the fintech sector globally amidst a combination of challenging economic conditions like high inflation and interest rates and specific market challenges like the lack of IPOs and exit opportunities, continued downward pressure on valuations and margin pressures for companies in areas like buy now, pay later.
“With little sign that the challenging market conditions will begin to alleviate as we head into H1’23, fintech investment is expected to remain relatively subdued, even compared to H2’22 — although several fintech subsectors are expected to be more resilient than others. The report outlines KPMG’s top predictions for fintech in H1’23.
*M&A deal sizes will be relatively smaller: With valuations expected to remain relatively unstable in H1’23, the likelihood of mega-M&A transactions — $10 billion+ in deal value — will be relatively low.
*B2B solutions will continue to attract solid investment: With many companies, both with the financial services sector and beyond, focusing on cutting costs and driving more customer value, B2B solutions will remain a key priority for investment.
*Interest in non-crypto blockchain-based solutions will grow: As investors pull back to re-evaluate their approaches to making investments in crypto, other areas of blockchain innovation will see growing interest — such as cross-border payments solutions, gaming and NFTs
*AI-driven fintech solutions will gain more attention from investors: There will be growing interest in AI-driven fintech solutions, particularly in areas like AI-based data analytics, real-time risk assessment, and customer engagement
*Regulators will put more scrutiny on the crypto space: Given events of 2022, regulators around the world will likely put more scrutiny on companies and activities in the crypto space.
*ESG-focused fintechs will see growth: With climate change a major priority for governments, businesses and consumers, interest, and investment in fintech solutions aligned to ESG will likely grow considerably. Investments could be quite diverse, from financing platforms for renewable energy projects to ESG-focused regtech solutions.
Copyright 2022 Al Hilal Publishing and Marketing Group Provided by SyndiGate Media Inc. (Syndigate.info).