Origionally Published on July 14th in KPMG website
After a record 2021, global fintech funding is working through a period of correction, KPMG in Singapore’s H1 2022 analysis of private market capital has found*. Yet Singapore, followed by its adjacent Southeast Asian (SEA) markets, is bucking the trend.
Globally after a banner year of US$210billion inward investing across fintech sectors in FY2021, investors are being more discerning with H1 2022 investment of US$108 billion. A combination of macro drivers are contributing to this contraction: importantly, the rise in interest rates is sharpening the investment theses of venture capitalists, as the higher cost of capital redirects their funding towards higher growth markets and the next wave of technology transformation.
In this context, Singapore, as the hub for SEA, has weathered the current market conditions well, doubling its global share. By deal value, Singapore’s global market share has doubled from 3.1 percent of global deal value for Fintech in FY2021 to 6.4 percent in Q2 2022. Share of number of deals against global deal numbers is now at 5.1 percent against a 3.4 percent average FY2021. Deal sizes have grown significantly in Q2 2022, up 10 percent to average US$43.9 million from US$39.8million across FY2021, whilst deal activity for the first half of the year is the second highest on record behind 2021.
“Whilst we are seeing the fintech investment market correcting globally, Singapore is holding its position well. As the trusted hub for high growth and rapidly digitising Asian markets, the diligence in developing an open, cross border ecosystem is paying dividends. However, we shouldn’t be complacent and we should continue to evolve the mix of services to retain relevance to investors and users of the next generation of innovative services. The recent Point Zero Forum is a good yardstick for this future investment into Digital Assets, Sustainable and Embedded Finance” said Anton Ruddenklau, Global Head of Fintech, KPMG International.
With 2021 very much acting as a high watermark for the last decade of fintech investment, private capital investors such as private equity (PE) and venture capital (VC) firms are now refocusing their 2022 investments towards technology that will fuel industry transformation over the next ten years and beyond. Fintech in the domains of climate change, supply chain, financial & crypto market infrastructure, artificial intelligence and agritech is now attracting high interest.
The Singapore Government and MAS have set a strategic path that is aligned to these future drivers of change across sustainable finance and digital assets. Recently launched initiatives demonstrate MAS’ commitment to these drivers, piloting use cases and utilities through industry collaborations across Sustainable Finance and Digital Assets with Project Greenprint and Projects Guardian and Dunbar respectively.
KPMG expects this to continue positioning SEA as one of the largest deal markets in APAC, which will potentially translate to the initial public offering (IPO) market in 2023. With SPACs listings recently introduced on the Singapore Stock Exchange in September 2021, this may further catalyse the IPO market, following the successful listings of the first 3 SPACs in H1 2022.
Environmental, social and governance (ESG) adoption is also on the rise, fuelled by cross industry demand and a desire to make an impact. As ESG momentum continues to gain steam, investors are refining and evolving their strategies. Growing ESG technology classes such as agritech, carbon markets, sustainable finance and data services are forecasted to attract investment growth of up to 150.9 percent compound annual growth rate (CAGR) between 2017 to 2021.
“MAS’s Project Greenprint demonstrates a unique and ambitious system wide approach to the innovation of Financial Services to support both Transition and Sustainable Finance. Investors recognise that this is set for incredible growth and it will likely be stimulated by a new generation of technology entrepreneurs supporting change both within real economy sectors and financial services concurrently. Critical to the project’s success is the global attraction, development and scaling of the best green fintech firms to Singapore. KPMG’s recent announcement of its Business Foundry fintech accelerator, along with other MAS initiatives, is set to deliver on this need”, said Mr Ruddenklau
As of June 2022, there were 1,007 operating fintech firms in Singapore. The number of fintech firms in Singapore remains the highest among SEA countries representing 67 percent of the total across the region which numbered 1,482.
Contributing to Singapore’s market stability has been the city-state’s ranking among the world’s most competitive economies and its recognition as a dynamic global financial hub, with estimated total assets of S$4.7 trillion under management. For the last two years running, Singapore has been nominated as the top global innovation location for technologists by its peers in KPMG’s Global Technology Innovation Hubs research.
Singapore has executed a national strategy for the further development of the fintech sector, adopting policies and incentive programs such as the Regulatory Technology Grant program and the Digital Acceleration Grant program to speed up technology adoption in the financial sector. The ambition to become a global fintech hub is accompanied by regulations that structure the development of the field.
Additionally, with Singapore now ranked second in the world on the International Property Rights Index (maintained by the Property Rights Alliance), this bolstered confidence from companies that invest heavily in research and development could undoubtedly lead to more IPOs on the SGX going forward.