What is the future of fintech funding in 2023?

Sumit Kumar Managing Director and Partner, Boston Consulting Group

Fintech funding will continue to be a challenge in 2023. Typically over 40% of funding in the fintech space is linked to large ticket deals for Series C+ fund raises. Investors have a much sharper lens now when they look at investing – key considerations include the quality of the team and founder, viability of business model in the long term, trajectory of cash burn, and unit economics. A lot of Fintechs rode the COVID-19 wave and grew big without really focusing on the fundamentals of sustainable growth and value creation. Some of these large fintechs are near their Series C or D rounds and find it difficult now to re-orient their business model from explosive growth in customer/transaction volumes to profitability with a viable business model. Investors have also realised that IPO exits in the growth tech space in markets like India and Southeast Asia (SEA) are tough.

With a lack of depth in equity markets in places like SEA, the downfall of SPACs as an option for listing from the US, and lacklustre returns of growth tech stocks post-listing make investors very jittery in constantly pouring cash into these companies.

But the outlook is not all bleak. While absolute dollars in terms of total funding has gone down, the number of deals funded remains robust especially in the seed round and Series A round, which shows that founders with good ideas and the right economic model still have investors who are willing to support them in their journey of growth. From sectors like crypto, and wallets (with huge cash burn), funds have vanished, while others like lending, and wealth (large scale with good mix of B2C and B2B2C proposition) continue to see money flowing in.

Product Watch

DBS launches multi family office platform

DBS Private Bank has launched the DBS Multi Family Office Foundry VCC (DBS MFO), offering investment and wealth services in a single platform without the need for clients to set up their single family offices in Singapore. DBS MFO is an umbrella VCC with multiple underlying sub-funds. Clients may access a range of investment strategies and can choose either to have their subfund professionally managed by the DBS Discretionary Portfolio Management or DPM team, or by a family member or investment adviser of their choice, the bank said in a press release.

Anton Ruddenklau Partner and Global Head of Fintech, KPMG International

The future of fintech funding remains optimistic. Despite a slow 2022 for global fintech funding, falling to US$63 billion from 2021’s all-time high of US$122.9 billion, a bounce-back is expected. Growth outlook for the second half of 2023 may remain constructive, albeit at lower levels compared to previous years as investments are being prudently recalibrated. We believe the key trends in the upcoming months driving this rebound include higher focus on quality within the fintech space, rise in government support and deeper focus on key sectors.

Firstly, fintech investors are focusing on quality over quantity. They are enhancing their focus on cashflows, profitability, and underlying unit economics of the company. We have seen a consolidation in the market, leaving with only “quality” fintech startups. These resilient and profitable fintech companies are boosting investor confidence in future investment choices.

Secondly, we expect more development in the form of supportive government policies and initiatives which will continue to drive demand in the fintech space. For instance, innovation and talent grants, as well as tax exemptions are given out by the Monetary Authority of Singapore (MAS). Regulators in the region are also prioritising green and sustainable fintech and are paving the way for fintech investors in this new emerging market. Ultimately, all efforts foster strong and resilient fintech ecosystem.

Thirdly, with the rise of ChatGPT, we are seeing fintech subsectors such as payments, generative artificial intelligence, digital assets, blockchain, embedded finance, and Environmental, Social and Governance (ESG) gaining steam in the eyes of investors.

The new offering has reportedly attracted keen interest from ultra-high net worth families and their advisors globally, said Lee Woon Shiu, group head of wealth planning, family office & insurance solutions for DBS.

Shiu shared that the bank is already in talks with over 20 clients and prospects across Asia since previewing DBS MFO a few weeks earlier.

“Client interest in succession planning and wealth preservation has intensified and, in fact, we recorded a substantial increase in the number of new requests in [the first quarter]. This will continue to fuel the growth of our family office business,” Shiu added.