The first half of 2024 was a challenging one for global fintech investment, with all regions experiencing a noticeable drop due to ongoing concerns related to geopolitical uncertainty and high interest rates, according to a recent report.

Total global fintech investment declined roughly 18% from US$62.3 billion to US$51.9 billion between H2 2023 and H1 2024, the lowest six months of fintech investment since H1 2020, according to KPMG’s latest fintech report.

And, in the Asia-Pacific region, the report notes, fintech investment was worse, dropping approximately 21.7% from US$4.6 billion in H2 2023 to US$3.7 billion in H1 2024, despite a small uptick in deal volume from 406 to 438 deals.

The decline of total investment in Asia-Pacific is because of the generally smaller deal size. The largest deals in the region during the first half of 2024 include the:

• US$280 million raise by China-based capital markets solutions firm Yi’an Enterprise
• US$209 million, by India-based personal loan platform KreditBee
• US$195 million, by Thailand-based digital financial solutions company Ascend
• US$150 million, by China-based ESG financial solutions platform MioTech and Australia-based performance management firm Camms.

The geopolitical and economic uncertainties in the region contributed to the slowdown of fintech investment. Total investment has declined in China, India, Singapore, Australia and Japan. This is because mergers and acquisitions (M&A) and private equity (PE) investments were particularly soft in the region.

M&A deals in H1 2024 accounted for only US$300 million in deal value, continuing the shrinkage of activities from 2023, compared with the US$33.9 billion of fintech M&A deal value for the entire year of 2022.

PE investments, the report shows, accounted for US$7.8 million in the first half of 2024 with only five deals. Fintech investors remained quite cautious, particularly corporates, which leaned heavily towards cost and risk management rather than focusing on fintech investment.

In China, fintech investment roughly matched regional and global trends, but was still quiet compared with historical trends – only US$624 million in total investment during H1, compared with US$754.6 million in H2 last year, down almost 19%.

However, financial services continued to be a key priority for China’s central government, with five finance subsectors identified as priorities – technology, green, inclusive, pension and digital. And environmental, social and governance (ESG) finance came into the spotlight in H1 with the US$150 million raise by ESG financial solutions platform MioTech.

After decreasing significantly in 2023, global investment in crypto and blockchain stabilized quite a bit in H1 2024. Hong Kong, Asia-Pacific’s crypto hub, stands out by capturing one of the five global crypto deals over US$100 million during the first half, all in the venture capital space, with UK-based Revolut raising US$139 million and Hong Kong-based Hashkey Group, US-based Berachain, UK-based MAR mining and US-based EigenLayer each raising US$100 million.

AI on the radar

In addition, artificial intelligence (AI) continued to grow on the radar of both fintech investors and companies, following a trend seen broadly both across Asia-Pacific and globally. During H1 2024, the AI focus came predominantly from traditional financial institutions looking to leverage AI to drive operational improvements and efficiencies.

Fintechs in the region have also enhanced their emphasis on the AI components of their solutions, although many of these remain quite nascent, the report explains, more sophisticated applications are in the works.

“A number of financial institutions in China have introduced AI-driven applications, such as digital customer service providers and AI robots to help answer questions,” says Andrew Huang, head of fintech at KPMG China. “Some have also started to use generative AI internally to help with the compilation of computer code for software design and other limited use cases.

“During H2 2024, we’ll likely continue to see these kinds of activities grow, many with the help of fintechs, but it will likely take time before any applications really mature.”

Looking forward, there are several trends that are expected to continue in the second half of 2024. Firstly, regulators in Asia-Pacific are intensifying their focus on data security and privacy. Secondly, fintechs in the region are looking for new geographies in which to grow, including areas like the Middle East, Latin America and neglected parts of Southeast Asia.

Thirdly, increasingly mature generative AI and AI applications tailored to the financial services sector are expected to appear. Fourthly, a number of mature fintechs are considering initial public offering (IPO) exits as IPO markets begin to open up in H2 2024 or H1 2025.

Lastly, there is, the report suggests, a continued shift from empire building to empire consolidating within the most mature fintech subsectors, including that of payments.