February 13 2024

Why fintech investment in APAC plummeted 75% in 2023

In our 2024 Top 10 Fintech Trends report, we noted how the once red-hot Southeast Asian fintech sector cooled precipitously in 2023. In the ASEAN countries, fintech funding hit a five-year low in 2023 with firms in the region raising just US$2 billion, a 65% plunge from US$5.9 billion in 2022. Notably, seed-stage funding saw an even more pronounced decline, dropping by 84% to US$9.5 million. As it turns out, what occurred in Southeast Asia was symptomatic of a broader regional decline in fintech funding.

A new report by KPMG found that in a year that was generally tough for fintech, APAC was hit the hardest as investment plummeted to US$10.8 billion from US$51.3 billion a year earlier. There was no single factor that caused the sharp fall. Rather, it was the confluence of high inflation, stubbornly high interest rates, geopolitical risk and a growing realization that some of these companies once seen as having almost infinite potential actually had questionable business models.

Taking a look at the 10 largest APAC fintech investments for 2023, we can see that it was arguably an even slower year than a preliminary look at the data suggest. The reason we say that is the No. 1 deal by KPMG’s calculations is the US$1.5 billion investment that went into the new Ant Group consumer finance company based in Chongqing. This appears to be a fintech giant moving around money within its own ecosystem, which is very different from a startup raising funds from outside investors. Similarly, while KPMG considers the US$359 million that Ant’s Singapore digital bank received as an “early-stage VC” investment, again, this was Ant injecting capital into one of its own subsidiaries.

Meanwhile, despite investment slowing markedly in Southeast Asia, there were some bright spots. For instance, the Philippines’ Netbank, which KPMG considers a digital bank but which could also be classified as a banking as a service firm, raised a Series A round led by Beenext with Kaya Founders and Oak Drive Ventures participating. Netbank says that it reached profitability in March 2023. 

Looking ahead, while there are signs of a fintech bubble in Southeast Asia, the market’s fundamentals remain strong. The region's continued appetite for digital financial services, with supportive governmental policies and a focus on localized, inclusive solutions, ensures that Southeast Asia will continue to be a fintech innovation hub. In the face of funding challenges and market consolidation, resilient and adaptable fintech firms have the opportunity to thrive and contribute to the region's dynamic financial landscape.

Looking ahead, the ascendancy of artificial intelligence (AI) and machine learning will be a key factor driving fintech innovation, even if these technologies do not live up to the extreme hype surrounding them. The sector's adaptability in embracing these new technologies as well as the evolving regulatory landscape and the focus on sustainable and green finance will be factors shaping the trajectory of digital financial services in Southeast Asia for years to come.