KPMG has just released its Pulse of Fintech report for the first six months of 2023, providing an analysis of global fintech funding.

Fintech funding in the Asia-Pacific region was soft during the first half of 2023; it reached $5.1 billion with 432 deals, a decline from $6.8 billion in the second half of 2022. This was a far cry from the first six months of 2022 when it totalled over $45 billion, a new report by KPMG reveals.

The largest fintech deal in the region during the first half of 2023 was the $1.5 billion raise by China-based consumer finance services company Chongqing Ant Consumer Finance, the firm said in a statement. Other deals in the region during the quarter were significantly smaller, including the $304 million buyout of India-based SME lending company Vistaar Finance by PE firm Warburg Pincus. There was also a $270 million raise by Singapore-based credit services firm Kredivo Holdings, and a $200 million raise by India-based digital lending platform Creditbee.

Global level
On a global level, the first six months of 2023 were also quite challenging for the global fintech market. Some of the challenges were expected — high levels of inflation, rising interest rates, the ongoing conflict between Russia and Ukraine, depressed valuations, and a lack of exits; others were less so, including the collapse of several banks in the US.

Both total fintech funding and the number of fintech deals globally dropped from $63.2 billion across 2,885 deals in the second half of 2022 to $52.4 billion across 2,153 deals in the first half of 2023, the report reveals. Total funding in wealthtech was incredibly soft, which was expected given the range of factors driving uncertainty in the global market, both within the fintech sector and beyond. The only $100 million+ deal occurred in the US —the most mature of the wealthtech markets globally, KPMG said.

Artifical intelligence
Looking ahead, Fintech firms are seeking ways to leverage AI-generated content (AIGC). Following on from trends seen globally, interest in AI has taken off in the Asia-Pacific region, with both investors and corporates looking for ways to leverage AIGC within fintech use cases, the firm continued.

In particular, there is strong interest in AIGC use cases which focus on marketing and customer engagement in order to upgrade customer experiences. While China has restricted access to ChatGPT, the country’s tech giants, including Baidu, Tencent, and Alibaba, all have their own large language models (LLMs). It is expected that these LLMs could be used as a basis for supporting AIGC use cases in the fintech sector heading into the second half of 2023 and into 2024.

“A number of startups are focused on developing AI and AIGC use cases for the fintech industry, but there have not been any mature applications to date in the fintech space. That said, there is enormous interest in AI, so more material AIGC-related applications will likely begin to appear over the next six months to a year,” Andrew Huang, partner, financial services, audit at KPMG China, said.

Aside from the $1.5 billion raise by Chongqing Ant Consumer Finance, fintech funding in China was remarkably dry during the first half of 2023, with the second largest deal being a $45 million raise by instalment financing company OH Credit, the report shows. The decline in funding in China most likely reflects businesses prioritising their post-pandemic recovery, including strengthening their business models and looking for growth opportunities. Fintech investors in China have also been taking a wait-and-see approach – expecting startups that they have previously funded to prove their value and outcomes prior to making further fundings, the firm said.

Managing logistics and supply chain finance was increasingly important in Asia Pacific during the first half of 2023, and it is expected to be equally important in the second half of the year as traditional manufacturing companies and others aim to increase efficiency across their end-to-end operations.

“We are seeing divergent stances taken towards cryptocurrency globally and within Asia Pacific. Hong Kong has announced a range of measures to establish a strong crypto ecosystem, and approved its first retail crypto exchange in August 2023, re-establishing Hong Kong as Asia’s premier crypto hub,” Barnaby Robson, partner, deal advisory at KPMG China, said. 

In future, KPMG expects to see an increasing focus on ESG-focused fintechs and green finance, as well as the use of AI and AIGC, particularly in improving the customer experience. Moreover, the space will see fintechs continue to concentrate on fintech enablement rather than on direct competition.