Global fintech funding hit its lowest level since 2017, totaling US$7.8 billion in Q2 2023 through 845 rounds, new data released by market intelligence platform CB Insights show.
The figures reveal a deteriorating fintech funding environment amid the global economic slowdown, and come despite robust underlying digital trends and strong long-term growth prospects of fintech companies, S&P Global Market Intelligence, a provider of financial and industry data, research and analytics, highlighted in a separate report.
Fintech funding continued its downward trend in Q2 2023, declining 48% quarter-over-quarter (QoQ), CB Insights’ State of Fintech Q2 2023 report indicates. Deal count also fell for the fifth straight quarter, decreasing 22% QoQ.
Fintech funding declined in all major global regions, with the exception of Latin America (LatAm) and the Caribbeans. The region drew in US$500 million, up 150% from US$200 million in Q1 2023, and is the only major region in the world that saw funding grow QoQ.
Mega-rounds of US$100 million and up also fell drastically, dropping by a staggering 78% QoQ to hit a six-year low of US$2 billion. Mega-rounds represented just 26% of total funding in the quarter, a sharp difference from the recent high of 67% share in 2021. The number of mega-rounds also fell to its lowest level in five years, dropping 20% to 12 rounds in Q2 2023.
Looking at fintech funding activity across sub-segments, data show that payments was hit harder than any other sector, plummeting 75% QoQ in Q2 2023 to US$2 billion. The figure marks a six-year low for the sector. After payments, digital lending witnessed the second biggest drop, falling by 44% QoQ to US$1 billion.
At the other end of the spectrum, venture capital (VC) firms remained hot on fintech companies with artificial intelligence (AI)-led models, injecting US$1 billion across 60 funding rounds into startups claiming to employ AI across fintech verticals, data from S&P Global Market Intelligence show.
Digital lending, insurtech, and investment and capital market technology segments were the primary beneficiaries of the trend, with each of these verticals witnessing more than 10 AI-based fintech companies raising capital.
The largest investment in an AI-based fintech startup in H1 2023 was a US$100 million round secured on Alphasense, a financial data solutions provider.
Global VC funding continues to plummet
After attaining record levels in 2021, fintech funding contracted in 2022 as greater economic uncertainty halted the frenzy of investing. These new data released by both CB Insights and S&P Global Market Intelligence paint a picture of continued dwindling financing for fintech firms despite strong growth prospects of the sector and sustained demand for digital tools and capabilities in financial services.
According to S&P Global Market Intelligence, deal volumes will need to increase considerably for fintech funding to witness a sustained rebound in aggregate funding amount.
A recovery in public market valuations of tech stocks, stabilization in interest rates and a pickup in mergers and acquisitions (M&A) activity could potentially arrest further decline in VC investments in the second half of 2023, the firm wrote in its new research paper.
Global VC funding of fintech startups totaled US$23 billion in H1 2023, data from both CB Insights and S&P Global Market Intelligence show. The sum represents a 49% year-over-year (YoY) decline, S&P Global Market Intelligence says.
The trend is consistent with what was observed in the broader VC landscape in Q2 2023 where funding fell 13% QoQ, data from CB Insights show. Total VC funding reached US$60.5 billion in Q2 2023, hitting its lowest level since Q2 2020. The sum brings H1 2023’s total to US$130.2 billion, representing less than one-third of 2022’s year-end total.