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The Big Regression is here (The FinTech Winter)

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Back in January, I forecast a Big Regression in 2022, and it's here and now. Layoffs at Klarna, concerns about cryptocurrency exchange viability after Luna and Celsisus, acquisitions of weaker fintechs by big banks and more are the things we see today. It's a bleak picture for some. By way of example, the KPMG report I'm sharing below states that UK fintech investment is down 65% year-on-year. So, I don't usually share press releases, but today is one of those days as it shows my forecast has come true. Here you go:

UK fintech investment drops to $9.6 billion in H1 2022 – down 65% in a year

  • 262 UK M&A, Private Equity and Venture Capital fintech deals completed in H1 2022 down from 341 in H1 2021
  • Total fintech investment in the EMEA region dropped from $31.6 billion to $26.5 billion between H2’21 and H1’22
  • Despite a slowdown in investment compared to last year, H1 2022’s figure remains above H1 2020 and H1 2019 figures

Total UK fintech investment dropped to $9.6 billion in the first half of 2022, down almost threefold from $27.8 billion in the same period in 2021, according to KPMG’s Pulse of Fintech, a bi-annual report on fintech investment trends.

Geopolitical uncertainty, turbulent public markets, ongoing supply chain disruption, high levels of inflation and increasing interest rates have all contributed to more subdued levels of UK fintech investment compared to the record highs experienced in 2021. Last year’s investment total was strengthened significantly by the size of many of the deals, which included the $14.8 billion Refinitiv deal in January 2021. Taking out 2021’s outlier results, such as the Refinitiv deal, the drop in UK fintech investment is not nearly as significant and is well above H1 2019’s figure of $3.8 billion. Five out of the ten largest fintech deals in H1 2022 in the EMEA region were completed in the UK.

John Hallsworth, Client Lead Partner for Banking and Fintech at KPMG UK, said: “Despite a slowdown in UK fintech investment compared to last year, the UK remains at the centre of European fintech innovation with British fintechs attracting more funding than those in France, Germany, China, Brazil and Canada combined.

“Similar to the UK, the EMEA fintech market also experienced a slight drop in investment in the first half of 2022 with $26.5 billion of investment across the region, down from $31.6billion in the second half of 2021. The decline was mainly driven by a fall in M&A deal value, which sank from $15.7 billion in H2’21 to $7.2 billion in H1’22.

“Regtech has been a particularly hot sector in the EMEA region in the last few months. In the wake of the conflict in Ukraine, there has been strong interest in anti-money laundering applications as banks seek to comply with sanctions, embargos and other regulatory measures.”

Total global fintech funding across M&A, PE and VC reached US$107.8 billion across 2,980 deals in H1 2022. Payments continued to attract the most funding among fintech subsectors, accounting for $43.6 billion in investment compared to the $60.3 billion seen during all of 2021. The acquisition of Australia-based Afterpay by Block (formerly Square) for $27.9 billion accounted for the largest payments deal of the quarter —and the largest fintech deal globally during H1’22.

Anton Ruddenklau, Global Fintech Leader, KPMG International, added: “The fintech market experienced a massive year globally in 2021, which makes it look like investment has somewhat fallen off a cliff so far in 2022. That really isn’t the case. We’ve simply shifted back to levels seen in 2019 and 2020.

“Taking out 2021’s outlier results, global fintech investment and interest was quite positive in H1’22. While the uncertainty permeating the market is expected to continue into H2’22, the diversity of fintech subsectors, combined with the diversity of jurisdictions attracting fintech investments, could help keep investment in the space relatively solid over the near-term.”

2022 Key global highlights

  • Total fintech investment and deals volume declined in both the Americas and EMEA regions, while the Asia-Pacific region attracted a new annual high of fintech investment amidst a decline in the number of deals.
  • Crypto-focused companies attracted $14.2 billion during H1’22, including a $1.1 billion raise by Germany-based Trade Republic in June.
  • Investment in the insurtech sector dropped considerably, with $3.8 billion of investment globally during H1’22 —well off pace to match the $14.8 billion in investment seen during 2021.
  • Compared to a number of other areas of fintech, global investment in regtech showed strong resilience in H1’22. Globally, regtech companies attracted $5.6 billion in investment across 157 deals —following a similar trajectory to the level of investment seen in 2021.
  • Despite a dip in quarterly investment to $22.7 billion, the Americas saw a record 806 deals in Q1’22, highlighting the strength of the fintech market in the region at the start of 2022. As geopolitical uncertainty and macroeconomic challenges increased towards the middle to end of the quarter, fintech investors pulled back somewhat. Total investment dropped to $16.8 billion across 624 deals in Q2’22, bringing the investment total to $39.4 billion across 1,430 deals for the first half of the year.
  • Total fintech investment in the Americas was $39.4 billion in H1’22, down from $59.7 million in H2’21
  • While Venture Capital investment globally declined from $66.5 billion in H2’21 to $52.6 billion in H1’22, compared to all periods outside of 2021, the amount was incredibly robust. The Americas attracted the largest amount of VC funding ($27.2 billion), EMEA saw a new record high level of funding for a 6-month period ($16.6 billion).

You can download KPMG's report here.

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Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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