RegTech gains momentum despite low FinTech investment, research reveals

By Puja Sharma

As per KPMG’s Pulse of FinTech report, FinTech investment dropped by 30% to US$164 billion in 2017. However, ‘resilient’ RegTech offers hope.

According to KPMG’s annual Pulse of FinTech report, fintech investment cooled off last year after reaching record highs in 2021. Despite a large drop from the high of 2021, it was the third best year for FinTech investment.

Following 2021’s record high level of total global Fintech investment ($238.9 billion) and deal volume (7,321), 2022 saw both total investment and deal volume fall — to $164.1 billion and 6,006, respectively. While low by comparison, it was the third best year for fintech investment ever and the second best year for deal volume.

Fintech investment drops by more than 50% in H2’22 compared to H1’22

Global fintech investment in H2’22 was $44.9 billion compared to the $119.2 billion seen in the first half of the year. The more than 50% decline highlights the impact of the sharp drop-off in large deals. H1’22 saw eight M&A deals greater than $1 billion — including the $27.9 billion acquisition of Australia-based Afterpay, two VC raises (Germany-based Trade Republic, UK-based Checkout.com) and one PE deal (US-based Genesis Digital Assets) globally. H2’22 saw just four M&A deals over the same amount — the largest being the $8.4 billion buyout of US-based Avalara. The largest VC raise of H2’22 was the $800 million raise by Sweden-based Klarna — which took a large cut to its valuation, while the largest PE deal was a $250 million raise by US-based Avant.

FinTech investment inches to new high in Asia, while declining in the Americas and Europe

On a regional basis, the Americas continued to account for the largest share of fintech investment globally, attracting $68.6 billion across 2,786 deals in 2022 — of which the US accounted for $61.6 billion across 2,222 deals. Comparatively, the Asia-Pacific region saw $50.5 billion in fintech investment across 1,227 deals, while the EMEA region attracted $44.9 billion across 1,977 deals. While both the Americas and Europe saw fintech investment decline, the Asia-Pacific region slightly surpassed 2021’s peak high on the back of Afterpay acquisition.

Investors prioritize profitability and cash flow as macroeconomic factors erode and valuations decline

At mid-year, investment in the fintech sector globally had only just begun to feel the impact of geopolitical uncertainty, rising interest rates and inflation, the downward pressure on valuations, and IPO market drying up. In H2’22, fintech investment generally followed general tech investment trends, with investors pulling back on many large and late-“stage deals and taking more time to conduct deals. As the IPO market dried up almost completely, reducing the opportunity for exits considerably, fintech investors globally also enhanced their focus on the cash flow and profitability of their existing portfolio companies.

“While global fintech investment dropped in 2022 — particularly in the second half of the year as large M&A transactions dried up — it can’t be characterized as a bad year by any means. Total investment was still the third highest ever, while the number of fintech deals came second only to 2021’s record high. 2022 was a particularly excellent year for regtech, with investment growing quite significantly year-over-year” said Anton Ruddenklau, Global Fintech Leader, Partner and Head of Financial Services Advisory KPMG International.

Key Trends

• RegTech continuing to gain steam in the eyes of investors
• Increasing investment focusing on fintech solutions that align with ESG and climate change priorities and targets
• Seed and early-stage companies continuing to draw attention, investment, and larger deal sizes IPO and M&A activity remaining soft well into H1’23 as valuations continue to face downward pressure
• Blockchain solutions outside of the crypto space gaining increasing attention from investors
• Growing focus and investment in the B2B and embedded solutions space, including embedded finance, embedded payments, and embedded insurance.