Fintech investment in EMEA ‘drops sharply to $44.9 billion in 2022’

Manav Prakash

Fintech investment in the Europe, Middle East and Africa (EMEA) region fell sharply from $79 billion on 2,379 deals in 2021 to $44.9 billion on 1,977 deals in 2022, while globally it fell to $164.1 billion across 6,006 appointments.

Investments across M&A (mergers and acquisitions), PE (private equity) and VC (venture capital) had fallen globally after reaching a record $238.9 billion across 7,321 deals in 2021, according to Pulse of Fintech H2’22 – a semi-annual report published by KPMG highlighting global fintech investment trends.

The sharp decline in Fintech investment between H1’22 and H2’22 – from $119.2 billion to $44.9 billion – highlights the rapidly changing market conditions much more clearly. H1’22 saw numerous $1 billion+ deals, including eight M&A – including the $27.9 billion acquisition of Australia-based Afterpay by Block, two VC raises – Germany-based Trade Republic and UK-based Checkout.com, and a PE deal – US-based Genesis Digital Assets.

H2 2022 is going badly

In comparison, H2’22 saw just three M&A deals above $1 billion – all in the US, including the $8.4 billion acquisition of Avalara, the $1.7 billion acquisition of Billtrust and the $1.6 billion acquisition of Computer Services Inc. The biggest VC raise of H2 ’22 was an $800m raise by Sweden-based Klarna – in what was a significant round down (A). The largest PE deal was a $250 million raise from US-based Avant.

In EMEA, investment in H1’22 was far more robust than H2’22, accounting for $32.8 billion in investment compared to $12.1 billion. The lack of $1bn+ fintech deals in H2’22 accounted for a much bigger drop – with the biggest deal in H1’22 the $3.9bn buyout of Italy-based SIA, compared to the $840m buyout of UK-based Nucleus Financial Group in H2’22.

Investments in crypto and blockchain fell to $23.1 billion in 2022 from $30 billion in 2021. The decline was particularly noticeable in the second half as investor sentiment related to the consumer crypto space and crypto exchanges declined following the Terra (Luna) crash in late H1’22 and the bankruptcy of crypto hedge company Three Arrows Capital in July.

With consumer crypto offerings losing their luster, investors have begun to turn their attention to broader blockchain-based solutions and value propositions, including institutional use cases and GRC applications.

While results were significantly lower compared to 2021’s highs, 2022 was not a bad year. In fact, it was the third best year for Fintech investment ever and the second strongest year for deal volume,

2022 Key Global Highlights

•Global fintech investment was $164.1 billion across 6,006 deals in 2022 – down from a record $238.9 billion across 7,321 deals in 2021.

•Payments remained the strongest area of fintech investment globally in 2022, with $53.1 billion in investment compared to $57.1 billion in 2021; Regtech was the only sector to buck the downward trend, with investment in the area rising from $11.8 billion in 2021 to a record $18.6 billion in 2022.

•Investments in crypto and blockchain fell from $30 billion in 2021 to $23.1 billion in 2022. The decline in the second half of the year was particularly sharp – as scrutiny in the area picked up significantly in the wake of the May Terra (Luna) crash and the November bankruptcy of FTX.

•The value of the global M&A deal fell from $105.1 billion in 2021 to $73.9 billion in 2022; global VC investment fell from $122.9 billion to $80.5 billion year over year. Growth investment in PE fell less sharply, from nearly $11 billion in 2021 to $9.7 billion in 2022.

•The Americas attracted $68.6 billion across 2,786 deals in 2022 – of which the US accounted for $61.6 billion across 2,222 deals, while the Asia-Pacific region attracted $50.5 billion across 1,227 deals, and EMEA attracted 44 .9 billion dollars spread over 1977 agreements.

•Corporate participating VC investments globally fell from $62.8 billion in 2021 to $39.6 billion in 2022.

Challenging economic conditions

Manav Prakash, advisory partner at KPMG in Bahrain, commented on the report’s findings: “The second half of 2022 was particularly challenging for the fintech sector globally, amid a combination of challenging economic conditions such as high inflation and interest rates and specific market challenges such as the lack of IPOs and exit opportunities , continued downward pressure on valuations and margin pressure for companies in areas such as buy now, pay later.

“With little sign that the challenging market conditions will begin to ease as we enter H1’23, fintech investment is expected to remain relatively subdued, even compared to H2’22 — although several fintech sub-sectors are expected to be more robust than others. The report outlines KPMG’s top predictions for fintech in H1’23.

Predictions

*M&A deal sizes will be relatively smaller: With valuations expected to remain relatively volatile in H1’23, the likelihood of mega M&A transactions – $10B+ in deal value – will be relatively low.

*B2B solutions will continue to attract solid investment: With many companies, both in the financial sector and beyond, focusing on cutting costs and generating more customer value, B2B solutions will continue to be a key investment priority.

*Interest in non-crypto blockchain-based solutions will grow: As investors pull back to reassess their approaches to investing in crypto, other areas of blockchain innovation will see growing interest – such as cross-border payment solutions, gaming and NFT -is

*AI-powered fintech solutions will gain more attention from investors: There will be increasing interest in AI-powered fintech solutions, especially in areas such as AI-based data analysis, real-time risk assessment and customer engagement

*Regulators will put more control on the crypto space: Given the events of 2022, regulators around the world are likely to put more control on companies and activities in the crypto space.

*ESG-focused fintechs will see growth: With climate change a top priority for governments, businesses and consumers, interest and investment in ESG-aligned fintech solutions is likely to grow significantly. Investments can be quite varied, from financing platforms for renewable energy projects to ESG-focused regtech solutions.