August 17 2023

Why APAC fintech funding has plummeted this year

What goes up must come down says Newton’s law of gravity. It doesn’t technically apply to fintech funding, but can, at least in figurative sense, be a useful paradigm for exploring why the funding spigots in the Asia-Pacific region are no longer gushing forth large capital injections. According to a recent KPMG report, fintech funding in the region fell to just US$5.1 billion in the first half of the year, a dramatic decrease from the record-breaking US$45 billion raised during the same period a year earlier.

There were no real blockbuster fintech deals in APAC in the first half of the year. While Chongqing Ant Consumer Finance was approved to raise US$1.5 billion, this was a special case, a mature fintech giant that is in the process of restructuring to assuage regulatory concerns and has had to split up its erstwhile empire into multiple units. That the fundraising happened to be announced in January could have been a coincidence. The unit was established back in June 2021. Meanwhile, the US$1.5 billion is not a traditional VC investment, but a move by Ant to increase the Chongqing-based company’s registered capital so that Ant can have a 50% stake in its new consumer finance unit.

Other deals in the region during the quarter were much smaller. These included the US$304 million buyout of India-based SME lending company Vistaar Finance by PE firm Warburg Pincus, the US$270 million raise by Singapore-based credit services firm Kredivo Holdings, and a $200 million raise by India-based digital lending platform Creditbee.

We wouldn’t go so far to say that this drop in funding is a return to normalcy, but perhaps it represents a recognition that some of the hype around fintech is cooling (though the U.S. had a very good H12023 in terms of funding). Broadly speaking, most fintech firms are not fundamentally transforming the nature of financial services, even in Asian countries with large unbanked populations. Technologies like blockchain that promise game-changing capabilities are not mature enough to make good on those promises. More time is needed.

While KPMG notes the excitement around artificial intelligence in fintech, particularly in cybersecurity, regtech and wealthtech, we will have to wait and see to what degree the reality corresponds with the hype. In the coming months, there will likely be growing investor interest in this segment as companies consider how they can employ generative AI effectively.