The European fintech sector faced significant challenges during the first half of 2023, experiencing a steep decline in funding that fell by more than 50% compared to the previous period.
Data from KPMG’s Pulse of Fintech report indicates that global fintech funding and the number of deals have both decreased, dropping 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.
Regionally, the Americas saw fintech funding increase from $28.9 billion to $36.1 billion, despite a decline in deal volume from 1,323 to 1,011 deals. In contrast, the EMEA region experienced a significant downturn, with funding plummeting by over 50%, from $27.3 billion across 963 deals in H2 2022 to $11.2 billion across 702 deals in H1 2023. The UK fintech investment specifically dropped sharply to $5.9 billion, down from $13.8 billion in the same timeframe last year. Funding in the APAC region also fell from $6.8 billion across 583 deals in H2 2022 to $5.1 billion across 432 deals in H1 2023.
This decline can be attributed to a pervasive sense of uncertainty in the market, fueled by high inflation, rising interest rates, geopolitical tensions, and devaluations in the tech sector. The early 2023 failures of several US banks also contributed to investors adopting a cautious “wait and see” approach during the first half of the year.
However, not all sectors were negatively impacted; several areas attracted substantial funding in H1 2023. Fintechs focused on supply chain and logistics secured $8.2 billion, exceeding the sector’s annual record of $5.5 billion set in 2019. Additionally, green fintech gained traction, attracting $1.7 billion during the first half of this year, which surpassed its total funding from 2022.
Judd Caplain, global head of financial services at KPMG, noted, “It wasn’t a surprise to see fintech funding decline in the first six months of 2023, given the enormous headwinds pressuring the market at the moment. However, the long-term business case for many subsectors within fintech remains very strong—particularly for sectors like payments, insurtech, and wealthtech. Once market conditions begin to stabilize, funding will likely rebound, if not reach the record levels experienced in 2021.”
With many geopolitical and macroeconomic uncertainties persisting, fintech funding is expected to remain relatively subdued throughout the year. KPMG highlights artificial intelligence, especially generative AI, as a promising area that may defy this trend.
“It is still very early days when it comes to the application of generative AI to financial services use cases,” stated Anton Ruddenklau, global fintech leader at KPMG. “However, it’s a field that is capturing a lot of interest and funding—particularly in cybersecurity, regtech, and wealthtech. Over the next six months, we anticipate an uptick in investor engagement as corporations seek effective ways to leverage generative AI.”