Asia Pacific venture capital (VC) flows into fintechs declined by 27% y-o-y to US$9 billion ($12 billion) in 2023, according to S&P Global Market Intelligence data.
Globally, the VC flows into fintechs dropped 42% y-o-y to US$35 billion. However, the downturn may be nearing end — S&P Global Market Intelligence fintech research analyst Sampath Sharma Nariyuri notes that the bearish funding cycle for fintech startups is likely bottoming out, with deal volumes at startups in later funding stages stabilising in recent times.
In 4Q2023, there were 472 rounds yielding US$6.7 billion, compared to 481 rounds worth $6 billion in the previous quarter.
“The improved investor sentiment for fintechs in public markets has yet to trickle down to private markets, creating some opportunities for venture capitalists to deploy capital at relatively attractive valuations and add alpha to returns.
“While it could still be a tall order for the industry to register growth in funding in the first half of 2024, S&P Global Market Intelligence anticipates the second half to experience flat to modest growth in funding,” he adds.
In terms of segment, investment and capital markets suffered the most amid crypto winter, dropping 72% to US$4 billion. Payments remained the largest destination for VCs, drawing US$14 billion of investment, down 26% y-o-y on the back of a trio of big-ticket deals.
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In 2023, over 188 funding rounds totaling US$2.4 billion involved startups claiming to employ artificial intelligence (AI) across fintech verticals. As over 85% of them are operating in seed-to-growth stages, S&P Global Market Intelligence expects to see some of these companies knocking on the doors of VCs for bigger checks in the next 12 months.
This year, fintechs will face ongoing pressure to strengthen their compliance policies, while maintaining agility and utilising rapid iteration to learn and improve, says Nariyuri.
“Venture capitalists will continue to prioritise capital-efficient growth and predictability in revenue. The fintech sector will increasingly leverage AI to introduce new products, enhance the end user experience and drive incremental topline growth. A re-evaluation of investment opportunities could lead to a geographical and segment rotation for venture capitalists.”
