Global Proptech Investment Triples In 2023: Survey The KPMG international survey says that geopolitics conflicts, high-interest rate environment, and barren exit environment across regions saw fintech investors holding onto their cash
By S Shanthi
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2023 was a challenging year for the fintech market, with total global fintech investment dropping from US$196.6 billion across 7,515 deals in 2022 to a six-year low of US$113.7 billion across 4,547 deals in 2023, according to a report by KPMG, which also says that the bright light, however, was proptech investment increasing from US$4.1bn to US$13.4bn between 2022-2023. Geopolitics conflicts, the high-interest rate environment, and the barren exit environment across regions saw fintech investors holding onto their cash throughout much of the year, says the report titled 'Pulse of Fintech H2'23.'
The second half of 2023 showed a marginal gain over the first half, with total fintech investment rising from US$55.5 billion in H1'23 to US$58.2 billion in H2'23. Six $1 billion+ deals contributed significantly to this result. VC investment was not so fortunate — dropping from US$27.5 billion to US$18.8 billion between H1'23 and H2'23.
"The fintech market floundered somewhat in 2023, buffeted by many of the same issues challenging the broader investment climate. While there were still good deals to be had, investors were definitely sharpening their pencils—enhancing their focus on profitability," said Anton Ruddenklau, Global Head Fintech and Innovation, Financial Services, KPMG International. "While it was a depressed year for the fintech market overall, there were a few particularly bright lights. Proptech, ESG fintech, and investors embraced AI-focused fintechs—which helped particularly in the last six months."
Fintech Funding: The Indian Scenario
India's fintech sector received funding of $2 bn in 2023, a decline of 63% and 76% compared to previous years - $5.4bn raised in 2022 and $8.4bn in 2021, respectively, said a recent report by market intelligence platform Tracxn. "Despite the challenges posed by factors including increasing borrowing costs and macroeconomic conditions, among others, India has become one of the world's top-funded countries. India ranked 3rd globally in 2023 in terms of fintech startup funding, strengthening its position as a significant player on the global stage," it said.
The report anticipates that the sector will witness long-term significant growth owing to factors such as the young tech-savvy population, a larger consumer base, its dependency on informal financial and commercial systems, and multiple initiatives by the government towards digitalization.
"Fintech companies with lending books are being compared to Five Star Finance (although it has a high PBV ratio). Expecting later-stage private companies in the future will be evaluated on models like Rule of 200 used in the US for public tech companies - A rule for fintech companies that suggests they target net retention rate, revenue growth, gross margin, and operating margin above 200," said Manoj Kumar Agarwal, co-founder and managing partner, SEAFund.
Additionally, focus on the path to profitability, resilience, regulatory changes are some of the favourable factors for fintech. "In response to market changes, fintechs are concentrating on profitability and developing sustainable business models. Their strategies include fostering long-term customer relationships and channeling investments into revenue-enhancing innovations. Fintechs that strategically build competitive moats, nimbly adjust to regulatory changes, and effectively tap into India's extensive unbanked market, all while limiting their dependency on external capital, are expected to emerge as winners in 2024," said Bikram Mahajan, partner, Unicorn India Ventures, in an earlier interview.
