Singapore AI fintech investment surges in H2 despite global funding winter: KPMG

Funding for artificial intelligence (AI) technologies in Singapore’s FinTechsector surged 77 per cent in the second half of 2023, despite a global decline in FinTech investments amid economic uncertainties.

H2’s AI FinTech funding in the Republic rose to US$333.1 million (S$447.32 million), compared with US$148.1 million in H1.

This brought the full-year investment total to US$481.2 million across 24 deals in the sector, based on KPMG’s Pulse of Fintech report released on Tuesday (6 Feb).

Despite a robust funding performance in AI FinTech sector, Singapore still felt the deepening chills of a funding winter in 2023.

Its total FinTech investment in the second half year dropped 64 per cent to US$747 million across 87 deals, as compared to US$1.5 billion across 102 deals in the first half.

For the full year, Singapore’s FinTech sector registered a 68 per cent decline in total funding at US$2.2 billion, with deal activities halving to 189, coinciding with a global downturn.
 

KPMG attributed dampened investment activities to a more cautious investor sentiment, amid a lacklustre exit environment across regions with geopolitical conflicts and high interest rates.

“The increased scrutiny of potential FinTech deals, with an emphasis on profitability and avoidance of down rounds, further shaped the funding landscape in 2023,” said KPMG.

Total investments in the global FinTech market dropped to a six-year low of US$113.7 billion across 4,547 deals, down from US$196.6 billion across 7,515 deals in 2022.

The value of mergers and acquisitions (M&A) deals fell to US$56.4 billion from US$98.2 billion in 2022, and global venture capital investment declined to US$46.3 billion from US$88.8 billion.

Only private equity investment registered growth, up from US$9.6 billion in 2022 to US$11 billion in 2023.
 

Gaining traction

“The second half of 2023 showed slight resilience with a marginal gain over the first half, rising from US$55.5 billion in H1 to US$58.2 billion in H2 2023,” said KPMG, adding that the slight recovery was bolstered by six deals exceeding US$1 billion each.

These included the acquisitions of Black Knight (US$11.7 billion) and Adenza (US$10.5 billion), and a private equity raise by Finastra (US$6.9 billion).

By sector, the payments space attracted the highest share of global FinTech investment at US$20.7 billion, although it was a substantial drop from US$58 billion in 2022, said KPMG.

The property technology (PropTech) and environmental, social and corporate governance (ESG) sectors also gained traction.

“PropTech investment soared to a record high of US$13.4 billion in 2023, while ESG-focused FinTech investment saw a significant year-over-year increase, rising from US$1.2 billion to US$2.3 billion.”

Regionally, the Americas dominated the FinTech funding landscape, occupying nearly 70 per cent of total investment with US$78.3 billion across 2,136 deals. The US spearheaded this surge with US$73.5 billion in investments.

The Asia-Pacific region had a more than 75 per cent fall in FinTech funding with US$10.8 billion of 882 deals. In particular, India registered a more-than-half reduction in FinTech investment on the year to US$3 billion.

“FinTech investment in China rose year over year – from a 10-year low of US$800 million to US$1.9 billion,” KPMG added.
 

It predicts that global FinTech investment will remain soft in the first quarter of 2024 given ongoing global conflicts, high interest rates and a continued lack of exits. However, AI and business-to-business solutions will likely remain “big tickets for investors”.

“M&A activity could also start to rebound as investors more seriously look at distressed assets,” KPMG added.

Karim Haji, Global Head of Financial Services of KPMG International, noted that the FinTech market keeps evolving and it has come to the next wave with the application of AI.

“While the investment numbers are soft now – due to broader market conditions – the next year could be quite exciting for innovation in the FinTech space,” he said.

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