Global Fintech Investment in 2023 – Why the Industry Remains Optimistic After a Tough 2022

What can you expect in 2023

Using KPMG’s findings as the basis for his comments, Ruddenklau discussed what he thought the fintech investment sphere could look like in 2023. He said: “With interest rates still rising, valuation is going to remain quite difficult for some time. This is likely to keep many of the biggest potential M&A transactions on the shelf as investors wait to see if prices fall further.

“That said, M&A activity is likely to increase for smaller deals as corporates and larger fintechs look to acquire fintech capabilities at good value.”

The report concluded that H1’2023 is likely to remain muted for fintech investment. Although there was a possibility of increasing mergers and acquisitions, these were mainly predicted to take place among established, larger organizations. The general trend was that investors wanted to make safer investments. Despite this, the report highlighted optimism heading into the new year.

We wanted to find out if the industry agreed with this optimism, and we reached out to hear from experts.

Regtech will remain strong

Leo Labeismanaging director at REGnosys, a collaborative low-code platform for regulatory reporting, echoed similar thoughts to those present in the KPMG report regarding regtech’s resilience: “The slowdown in UK fintech investment will create challenges in the short term. But this downturn is far from a “doom and gloom” moment for our world-class fintech industry.

“A tighter economic environment is weaning business models that have no real value, and will in the long run strengthen fintech proposals that address defined problems and real market needs. A clear example of this is the regtech sector, which has emerged as one of the fastest advances in financial technology over the past twelve months, and whose growth is sure to continue.

“Regtech solutions are not just a ‘nice to have’. Against a backdrop of increasing scrutiny from regulators and G20 regulatory reforms, regtech is playing a central role in helping financial institutions comply with new regulatory standards.

“With spending on regtech set to triple by 2026 alone, this challenging period for fintech will not derail the innovations poised to make a game-changing difference to our financial sector.”

A year of consolidation

Marcelo Bentivogliostrategy manager at QIthe financial tools provider, was optimistic about consolidation in 2023, but was wary of high inflation and high interest rates and how they would affect the capital of fintechs.

He said: “The macro scenario of high inflation and high interest rates will be true in 2023. There will also be the opportunity costs for investors creating higher costs of capital for fintech. That said, fintechs that rely on debt money to scale, such as lending providers, will need to adjust pricing and be open to rounds with worse terms.

“Alternatively, infrastructure providers can operate better since they are not dependent on cash to grow. Finally, fintechs that also have financial licenses (and can hold deposits from customers) can benefit from liquid income from cash deposits.

“It is very likely that we will see a consolidation movement in fintech. Entrepreneurs will look for opportunities to merge and have a stronger balance sheet for years to come, while investors will look for potential investments that provide good M&A opportunities as their use of the proceeds.”

Corrects a record year

The drop in investment in 2022 from the offset may seem like a negative thing. Compared to a record year, however, any drop-off would have seemed negative. Ultimately, fintech is still in a very strong position in the investment world. Both Nikita HyettEuropean Managing Director, at BlueSnap and Juan Alonso-Villalobospartner and board member i Startup Wise Guysboth suggested that 2022 was a correction for previous years’ excessively high valuations.

Boost embedded payments

Hyett said: “It’s easy to get caught up in changes in valuations and layoffs, but it’s a cycle that the industry and the global economy is going through right now. It’s a consequence of the buzzy valuations we’ve seen for technology companies with shiny solutions over the past few years, so it’s only natural that we now have that correction. What doesn’t change is the hunt for the next big growth area.

“We still see huge opportunities in the embedded payments sector, for example, which is expected to reach £2.1 trillion by 2026. That’s a threefold increase on today. With business bottom lines under pressure, monetizing payments can not only help companies to generate new revenue streams but turn a challenging economic environment into a competitive advantage. It is this commercial imperative that will drive investor interest in the months ahead as fintech learns to get back to basics.”

Blockchain’s potential

Meanwhile, Alonso-Villalobos commented: “A reduction in investment over the past year can be seen as a correction of the previous bubble in the fintech industry. This will actually lead to a valuation adjustment in early and mid-stage startups, and entrepreneurs may face challenges in getting the valuations they want as the investment flow becomes more demanding.

“Overall, fintech is still prevalent in 2023 and is expected to remain so, with a focus on payments, back office standardization and the use of alternative data to aggregate loans and mortgages. Reducing the risk of insurance products and fraud detection, as well as digital identification or KYC management is another area of ​​growth in fintech investment.

“People still see cryptocurrency as risky, but blockchain technology has potential. There will still be money available for investment, especially in underdeveloped countries where there is a big movement towards financial inclusion and increasing financial literacy.”