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

Total fintech funding in the Americas rose to $36 billion in H1 2023, from $28.9 billion at the same time a year earlier, although it remained relatively weak compared with previous levels of funding, a new KPMG report reveals.

While the region attracted a number of sizeable transactions – all in the US – total deal volume dropped significantly, falling to a 12-quarter low. Given the amount of funding still available in the market, the decline in deal volume likely reflects a number of factors, including investors being much more selective about the deals they go after and valuation differences between what sellers want and what buyers are willing to pay, KPMG said.

The US accounted for the vast bulk of fintech funding in the region, including six deals over $1 billion: Coupa ($8 billion), Stripe ($6.8 billion), EVO Payments ($4 billion), Duck Creek Technologies ($2.6 billion), Moneygram ($1.8 billion), and Paya ($1.3 billion), KPMG continued.

Outside the US, only two countries attracted $100 million+ funding rounds: Mexico, which saw a $175 million raise by SMB-focused fintech Kapital, and Canada, which saw a $125 million raise by bitcoin infrastructure company Blockstream.

Following the collapse of a number of crypto companies in 2022 and the SEC increasingly looking at crypto companies, many traditional investors in the US pulled back from the space during the first half of 2023, the firm said. While there were a handful of larger crypto deals during the period, including the $155 million acquisition of Apex Crypto in the US and the $125 million raise by Canada-based Blockstream, funding was incredibly low relative to the last few years.

Non-crypto focused blockchain-based technologies continued to attract interest, as evidenced by the $320 million acquisition of remittance-focused technology company GammaRey by fintech data analytics company GoLogiq.

Compared with other sectors, the payments space showed strong resilience in the first half of 2023, with most of the largest transactions in the Americas occurring there. This resilience likely reflects the robustness of payments business models, which work both in good economic times and in bad ones, KPMG continued. B2B payments were particularly high on the radar of investors during the period, evidenced by the $8 billion buyout of spend management platform Coupa by Thomas Bravo, and the $4 billion acquisition of payments services provider EVO Payments by Global Payments. The size of these deals highlights the importance of scale in order for payments companies to be able to compete effectively in an increasingly mature sector.

Global level
On a global level, the first six months of 2023 were quite difficult for the global fintech market – high levels of inflation, rising interest rates, the conflict between Russia and Ukraine, depressed valuations, and a lack of exits. 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 causing 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.

Outlook
Trends to watch in the second half of 2023 in the Americas include more AI and generative AI use cases in financial planning and wealth management. Increased funding is expected as the financial markets normalize and there is more certainty that inflation is going down and that interest rates are stabilizing, the firm added. A growing diversity of geographic locations within the Americas – and domestically within the US – is also likely to attract fintech funding, KPMG said.

The firm expects a continued focus on B2B fintech solutions, particularly on those helping financial services companies improve efficiencies.

“We’re seeing investors, whether corporates or VC or PE firms, being much more selective around the businesses in which they invest. If they’re going to pay a high multiple, then the business has to be performing really, really well – not only from a growth perspective, but also from an operating perspective,” Robert Ruark, principal, financial services strategy and fintech leader at KPMG in the US, said. 

“While investors used to pour money into companies because of their growth story, now investors want to see a positive cash flow, if not a profitable company, in addition to high growth,” he added.