The European fintech industry bore the brunt of a global drop in fintech funding during the first half of 2023, declining by more than half over the peceding period.
The first six months of 2023 were difficult for the fintech market globally, with both total funding and the number of deals dropping, from $63.2 billion across 2,885 deals in H2 2022 to $52.4 billion across 2,153 deals in the first half of 2023, according to KPMG's Pulse of Fintech report.
At a regional level, the Americas saw fintech funding grow from $28.9 billion to $36.1 billion over the period — despite a decline in deals volume from 1,323 to 1,011 deals—over the same timeframe. In the Emea region, fintech funding dropped by more than 50%, falling from $27.3 billion across 963 deals in H2 2022 to $11.2 billion across 702 deals in H1 2023. Total UK fintech investment declined to $5.9 billion, a sharp drop from the $13.8 billion recorded during the same period last year. Fintech funding also dropped in the Apac region, from $6.8 billion across 583 deals in H2 2022 to $5.1 billion across 432 deals in H1 2023.
The cloud of uncertainty permeating the market continued to wear on investors, driven by high inflation and rising interest rates, geopolitical tensions and tech sector devalutations. The collapse of several US banks early in 2023 likely also kept many investors in wait and see mode during H1’23.
But not all the news was negative, with a number of sectors attracting robust funding during the first half of 2023. Supply chain and logistics-focused fintechs attracted $8.2 billion in funding in the first half of the year, well above the space’s 2019 annual record of $5.5 billion. Green fintech also had increased interest, with $1.7 billion of funding during H1, slightly ahead of its total 2022 results.
“It wasn’t a surprise to see fintech funding decline in the first six months of 2023, given the enormous headwinds pressuring the market at the moment,” says Judd Caplain, global head of financial services at KPMG. “But the long-term business case for many subsectors within fintech remains very strong — particularly for sectors like payments, insurtech, and wealthtech. Once market conditions begin to even out, funding will likely rebound-if not to the record level experienced in 2021.”
With no end to many of the geopolitical and macroeconomic uncertainties in sight, fintech funding is expected to remain relatively soft over the course of the year. KPMG identifies artificial intelligence, and generative AI in particular, as one application area likely to buck the trend.
“It is still very early days when it comes to the application of generative AI to use cases in financial services,” says Anton Ruddenklau, global fintech leader at KPMG. “But looking forward, it is an area that is attracting enormous interest and funding—particularly in areas like cybersecurity, regtech, and wealthtech. Over the next six months, we’ll start to see an uptick in investors embracing the space as corporates demand ways to leverage generative AI effectively.”