Market turbulence, inflation, geopolitical uncertainty lead to fall in fintech investment: KPMG
Nicole Valentine, fintech director of the Milken Institute’s Center for Financial Markets, talks about investing in the fintech space.
Global investment in fintech fell in the first half of 2022 as investors struggled with geopolitical uncertainty, public markets turbulence, scorching inflation and rising interest rates.
According to KPMG’s Pulse of Fintech report released in September, total fintech investment fell from $111.2 billion in the second half of 2021 to $107.8 billion in the first half of 2022.
According to KPMG’s Pulse of Fintech report released in September, total fintech investment fell from $111.2 billion in the second half of 2021 to $107.8 billion in the first half of 2022. (Photo courtesy of iStock) (iStock/iStock)
The firm notes that the Asia-Pacific region saw total fintech investment more than double from $19.2 billion in the second half of 2021 to a record $41.8 billion in the first half of 2022, with Block Inc’s acquisition of Australia-based Afterpay accounting for more than half of the total.
FILE PHOTO: The Afterpay app is seen on the screen of a mobile phone in a photo illustration taken August 2, 2021. (REUTERS/Loren Elliott/Illustration) ((REUTERS/Loren Elliott/Illustration) / Reuters Images)
Meanwhile, both the Americas and the Europe Middle East and Africa (EMEA) regions saw fintech investment fall from $59.7 billion to $39.4 billion and from $31.6 billion to $26.6 billion, respectively.
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Despite the sector’s recent funding downturn, Nicole Valentine, fintech director at the Milken Institute’s Center for Financial Markets, believes the space is “recession-proof”.
“I will continue to use my fintech products and solutions during the looming recession,” Valentine told FOX Business. “All the innovators in fintech that are still building on and solving for the problems that exist within the friction that happens in our transactions, that’s something that the next unicorn will come out of.”
When it comes to investing in fintech, Valentine looks at West African companies that solve big problems, can easily scale their solutions and have an experienced team behind them.
“There are so many great unicorns in development there,” Valentine said. “I really like companies that have already raised capital. Flutterwave, Chipper, they’ve done really well. And I think that we should continue to look at emerging markets and emerging economies and how they’re solving their fintech problems.”
In this photo illustration, the Flutterwave logo of a payment company is seen on a smartphone and a PC screen. (Photo illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images) ((Photo illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images) / Getty Images)
She is also hopeful about the future of early-stage fintech companies.
“I predict that there will be many early-stage fintech companies that come out of this tough time,” she added. “Crisis and tough times are the mother of invention. And so we’re going to see a lot of inventive fintech companies come out to solve still a lot of the problems that exist in the space.”
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As valuations come under pressure, Anton Ruddenklau, KPMG International’s global head of innovation and fintech for financial services, warns that investors will be focused on cash flow, earnings growth and profitability, making it difficult for some firms in the space to raise funds.
“However, M&A activity could see an uptick as struggling fintechs look to sell rather than hold a slump, corporate and PE investors move to take advantage of better prices, and well-capitalized fintechs look to cash out the competition,” Ruddenklau added.
Areas where KPMG expects fintech investment to remain robust include business-to-business payments, cybersecurity automation and data-driven analytics.
