It was a challenging year for fintech investment in the Asia Pacific (ASPAC) region, as it sees its fintech investment fall more than 75 percent, KPMG said Tuesday.
According to its Pulse of Fintech report, the region saw $10.8 billion in investment across 882 deals in 2023, compared to $51.3 billion across 1,537 deals in 2022.
Second half of last year was somewhat slower than the first half of the year, with fintechs attracting $3.4 billion in investment, as compared to $7.4 billion.
Venture capital deals accounted for the largest deals in the second half of 2023, with raises by Hong Kong-based Micro Connect ($458 million) and Singapore-based boltech ($246 million).
Three other ASPAC jurisdictions also attracted $100 million fintech deals in the second half of 2023, including Indonesia (Investree – $231 million PE raise), India (Perfios – $229 million VC raise, Chaitanya – $178 million M&A) and Japan (Gojo & Company – $110.6 million).
A stalled exit environment likely contributed to the low levels of fintech-focused venture capital investment in the ASPAC region during 2023, with initial public offering (IPO) markets particularly quiet in both China and Hong Kong (SAR).
Without exit opportunities, venture capital investors have been quite reluctant to make major investments, particularly at later deal stages, said the report.
Meanwhile, artificial intelligence (AI) was one of the hottest areas of investor interest in the ASPAC region during 2023, given its widespread applicability across areas like wealth management, payments and insurtech.
Over the course of the year, a growing number of startups looked to embrace large language models and develop unique applications of AI for the fintech space.
It is noted that in China, the fintech sector is no longer viewed as a truly emerging tech sector, with a growing number of mature fintech companies and fintech offerings — like buy now, pay later — considered a normal part of the financial services ecosystem in the country rather than as pure startups.
With a growing stable of mature fintech companies, many of which have developed more sustainable cash flows — the need for large capital raises in China has declined considerably.
Meanwhile, across Asia, there has been a strong focus on the enablement of financial institutions, with a growing number of startups looking for ways to enhance the activities of financial institutions rather than ways to entirely disrupt financial services industries.
According to the report, crypto attracted a lot of attention in the ASPAC region during 2023, with a number of jurisdictions working to enhance regulations in a bid to become global market leaders in the sector.
Stablecoins were a particular focus for regulators during the year, with Japan enacting legislation to govern the issuing of stablecoins in the first half of 2023 and Singapore finalizing its regulatory framework for stablecoins in the second half of 2023.
It is noted that Singapore also introduced new rules for its digital payment token providers in order to better ensure the safeguarding of customer assets.
For the first half of 2024, the report sees continued focus on leveraging AI and AI-generated content (AIGC) as part of solutions aimed at enabling the financial services sector.
It said China-based fintechs are working to expand globally, particularly in regions like Southeast Asia and Latin America.
It also said insurtech and wealthtech are growing on the radar of fintech investors.
It also noted Japan and Singapore is continuing to find ways to encourage activity in the crypto space.
“AI and AIGC was probably the number one trend in the ASPAC region during the second half of 2023,” said KPMG.
According to KPMG, companies across fintech subsectors worked to leverage AI within their products and solutions. Investors showed a lot of interest in AI-driven solutions — not only in China, but in Singapore, Japan, and other jurisdictions as well.
“Looking ahead, this is an area that is well positioned to see significant growth over the next year, although a lot of this activity may be driven by large corporates looking to further integrate AI within their own solutions,” it added.
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