In a surprising turn of events, funding for artificial intelligence (AI) technologies within Singapore’s fintech sector experienced a remarkable upswing of 77% in the latter half of 2023, defying the global trend of decreased fintech investments amid economic uncertainties.
According to the latest KPMG Pulse of Fintech report released on Tuesday (Feb 6), H2’s AI fintech funding in Singapore surged to an impressive US$333.1 million, a significant leap from US$148.1 million in H1. This surge contributed to a full-year investment total of US$481.2 million across 24 deals in the sector.
Despite this robust performance in AI funding, Singapore grappled with the pervasive impact of a funding winter in 2023. The total fintech investment for the second half of the year saw a substantial 64% decline to US$747 million across 87 deals, compared to US$1.5 billion across 102 deals in the first half.
For the entire year, Singapore’s fintech sector recorded a noteworthy 68% decrease in total funding, amounting to US$2.2 billion, accompanied by a halving of deal activities to 189, aligning with the global downturn.
KPMG attributed the dampened investment activities to a cautious investor sentiment prevailing amid a lackluster exit environment globally, marked by geopolitical conflicts and high-interest rates. “The increased scrutiny of potential fintech deals, with an emphasis on profitability and avoidance of down rounds, further shaped the funding landscape in 2023,” stated KPMG.
Globally, investments in the fintech market plummeted to a six-year low of US$113.7 billion across 4,547 deals, down from US$196.6 billion across 7,515 deals in 2022. Mergers and acquisitions (M&A) deals’ value dropped to US$56.4 billion from US$98.2 billion in 2022, and global venture capital investment declined to US$46.3 billion from US$88.8 billion. Only private equity investment showed growth, increasing from US$9.6 billion in 2022 to US$11 billion in 2023.
Despite these challenges, the second half of 2023 demonstrated slight resilience, with a marginal gain over the first half, rising from US$55.5 billion in H1 to US$58.2 billion in H2 2023, driven by six deals exceeding US$1 billion each. Notable transactions included the acquisitions of Black Knight (US$11.7 billion) and Adenza (US$10.5 billion) and a private equity raise by Finastra (US$6.9 billion).
The payments sector attracted the highest share of global fintech investment at US$20.7 billion, albeit experiencing a substantial drop from US$58 billion in 2022. Proptech investment soared to a record high of US$13.4 billion in 2023, while ESG-focused fintech investment saw a significant year-over-year increase, rising from US$1.2 billion to US$2.3 billion.
Regionally, the Americas dominated the fintech funding landscape, securing nearly 70% of total investment with US$78.3 billion across 2,136 deals. The Asia-Pacific region faced a more than 75% fall in fintech funding, registering US$10.8 billion from 882 deals, notably with India experiencing a more-than-half reduction in fintech investment to US$3 billion. China, on the other hand, witnessed a year-over-year increase in fintech investment, rising from a ten-year low of US$800 million to US$1.9 billion.
Looking ahead, KPMG predicts that global fintech investment will remain soft in the first quarter of 2024 due to ongoing global conflicts, high-interest rates, and a continued lack of exits. However, AI and business-to-business solutions are expected to remain significant attractions for investors. “M&A activity could also start to rebound as investors more seriously look at distressed assets,” added KPMG.
Karim Haji, the global head of financial services at KPMG International, emphasized that the fintech market is evolving, entering the next wave with the application of AI. Despite current soft investment numbers due to broader market conditions, he expressed optimism, stating, “the next year could be quite exciting for innovation in the fintech space.”