Fintech deals take a hit in 2022

In its second half 2022 Pulse of Fintech report, KPMG said Australian deal volume dropped to 123 transactions in 2022 after reaching a historical high of 187 deals in 2021.

Investment hit a record US$30.2 billion ($44.4 billion) for 2022, however, this was almost entirely driven by Block’s US$27.9 billion acquisition of Afterpay. Removing this outlier, overall fintech investment would have fallen from US$3.01 billion in 2021 to US$2.2 billion in 2022.

Australia wasn’t the only market to see deal volumes decline in 2022. Following a record US$238.9 billion across 7,321 deals in 2021, total global fintech investment across mergers and acquisitions, private equity, and venture capital fell to US$164.1 billion across 6,006 deals last year.

Despite the considerable drops, KPMG said 2022 was the third best year for fintech investment ever and the second strongest year for deal volume.

The rapidly changing market conditions are highlighted in the stark difference between first and second half results. Investment sat at US$119.2 billion in the first half of 2022, before slipping to US$44.9 billion in the second half.

KPMG Australia head of fintech, Dan Teper, said “2022 saw a repricing in the overall venture capital market, which affected fintechs both globally and in Australia”.

“The market continues to correct to previous years following a bumper 2021, and for Australian fintechs, this has resulted in fundraising taking longer — often on flat or discounted valuations, while business models have shifted to be more focused on sustainable, rather than top line growth.

“Within the ecosystem, crypto’s extreme volatility has resulted in investment in associated assets and businesses to be challenging. However, we have also seen ongoing interest in areas like regtech and payments, and continued appetite amongst incumbent financial services players for the innovation opportunities that fintech start-ups bring.”

KPMG projected that fintech investment would remain subdued globally as macroeconomic challenges persist, adding that M&A activity could begin to pick up, albeit with smaller deal sizes.

“Over the past few years, we have seen a wave of cash lift the Australian fintech environment — helping to drive mass innovation and create a thriving and vibrant ecosystem of active start-ups, scale-ups, and mature businesses,” said Mr Teper.

“We can expect to see some rationalisation in the market as capital flows correct, and some businesses struggle to attract the capital they need to reach their full potential. This in turn could lead to M&A activity in the coming years.

“Regardless, the success of Afterpay and the ongoing opportunities to innovate in financial services mean that fintech opportunities and investment will continue to be supported, even if we don’t match the record levels of previous years.”