Fintech Fundings Slumps 46%, What’s in Store for 2023?

There will be a 46% decline in fintech funding in 2022, to $75.2 billion.

Global fintech funding dropped by 46% to $75.2 billion in 2022, according to CB Insights’ 2022 State of Fintech Report. Overall transaction activity fell by 8% YoY to 5,048 during the period, with global mega funding rounds down 52% YoY to 179 and unicorn births down 58% YoY to 69. According to the research, this is the smallest starting population of unicorns since 2022.

All industries, from banking and digital lending to wealthtech and capital markets tech, saw a decrease in funding. Funding in the payment sector fell 49% to $20.8 billion, while banking industry funding deteriorated 63% to $9.4 billion. Similarly, funding for wealth tech and insurtech fell by 41% and 53%, to $8.8 billion and $8.4 billion, respectively, while funding for digital lenders fell by 53% to $11.5 billion. funding markets tech also saw a 39% reduction in new funding, at $2.3 billion.

Across the globe, funding was down significantly: in the United States, it was down 50% YoY to $32.8 billion, in Canada it was down 48% to $1.3 billion, in Asia it was down 37% to $15.9 billion, in Europe it was down 34% to $19.2 billion, in Latin America and the Caribbean it was down 71% to $4 billion, in Africa it was down 27% to $1.1 billion, and in Australia it was down 57% to $0.9 billion.
Operating Point Capital Advisors Partner and Chief Investment Officer Michael Ashely Schulman predicts a sharp decline in fintech VC funding in 2022 due to falling cryptocurrency prices and failing businesses. Schulman said that “”the closing of initial public offering prospects on the heels of collapsing stock markets, the end of the SPAC fervour, and the closures of numerous once attractive and well-backed enterprises”” were further dampening factors.

“The model of growth at any cost may have held some logic in a zero-interest rate environment, but lost a sense of reasonableness as financing costs escalated,” Schulman told Finance Magnates.
The fintech industry saw a 52% increase in funding last year, which is an improvement from 2020 despite the funding decrease. Where did we go wrong?
Stripe, a payment processor, and TaxJar, a compliance company it purchased a year prior, both reduced their workforces in the United States. Danish expenditure management startup Pleo has announced a 15% layoff, joining other fintech companies like Klarna (a Swedish buy-now-pay-later company), Chime (a California-based neobank), and Chipper Money (a Danish company that facilitates cross-border payments in Africa) in making similar announcements. Not even the biggest banks like Citigroup and Barclays were spared.
In addition, checkout company Quick, which received over $102 million, shut down operations due to poor development and excessive cash burn. Other failing fintech startups included German carbon-accounting company Planetly, the UK challenger banking app Dozens, and Australia’s first online bank, Volt Bank-all causes related to unfavourable macroeconomic conditions and high operating expenses.
The wave of layoffs in the financial technology industry will continue into 2023, with Goldman Sachs having announced 3,200 job cuts earlier this month. Will things change in 2023?

Spending on Financial Technology in 2023
Since the beginning of 2023, Finastra, Pagaya Technologies, and Avalara are just a few examples of fintech companies that have slashed headcount. Over the past decade, in spite of historically low interest rates, worldwide venture capital funding has surged from $1.8 billion to over $30 billion annually.

Fintech financing is expected to expand at a slower rate than in 2021 due to historically high inflation. The Federal Reserve, the Bank of England, and the European Central Bank are all expected to increase interest rates in February, while investors and economists anticipate a recession in 2023. Clear Junction CEO Dima Kats predicts that despite the difficult climate this year, fintech will continue to attract significant investment even as more funding is allocated to firms in their formative stages.

Furthermore, numerous other factors are expected to influence the fintech sector in 2023, according to researchers. Bell, for one, predicts that as the embedded finance sector expands beyond payments, more institutions will try to break into it. Although the CEO anticipates that not all fintech providers will be on an even playing field, he believes that embedded finance organisations would attempt to meet industry-specific demands. “New entrants to the market will struggle without the expertise needed to navigate complex banking regulations and the peculiarities of different industries,” Bell told Finance Magnates.

Moreover, Schulman believes that investors will always readjust their expectations and seek out more long-term lucrative strategies. Future global fintech trends include what Schulman called “a stronger focus on fintech solutions in emerging markets and quickly growing regions” such as Nigeria, Indonesia, and Brazil. Embedded financing will also continue to increase, but the number of major players will dwindle.

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