In its latest report on global fintech funding, McKinsey revealed that global fintech funding faced a 40 per cent year-over-year funding decline from US$92 billion to US$55 billion after industry funding increased by 177 per cent YoY in 2021.
However, the report also stressed that when analysed over a five-year period, fintech funding as a proportion of total VC funding remained fairly stable at 12 per cent, registering only a 0.5 percentage point decline in 2022.
“In 2022, a market correction triggered a slowdown in this explosive growth momentum. The impact continues to be felt today. Funding and deal activity have declined across the board, and there are fewer IPOs and SPAC (special purpose acquisition company) listings, as well as a decline in new unicorn creation. The macro environment also remains challenging and uncertain,” the report explained.
“In such a scenario, fintechs are entering a new era of value creation. The last era was all about firms being experimental—taking risks and pursuing growth at all costs. In the new era, a challenged funding environment means fintechs can no longer afford to sprint. To remain competitive, they must run at a slower and steadier pace.”
The report also revealed that as of July, publicly traded fintech companies represented a market capitalisation of US$550 billion, a two-times increase versus 2019.
“In addition, as of the same period, there were more than 272 fintech unicorns, with a combined valuation of US$936 billion, a sevenfold increase from 39 firms valued at US$1 billion or more five years ago,” it stated.
When it comes to market-specific insight, the report mentioned that emerging markets will “fuel” the majority of the revenue growth for fintech companies.
“Fintech revenues in Asia Pacific (excluding China), Africa, Latin America and the Middle East represented 15 per cent of fintech’s global revenues last year. McKinsey estimates that they will increase to 29 per cent in aggregate by 2028,” it stated.
The report also spotlighted new tech innovation related to fintech and how it will affect the industry in general.
“To capture the extra US$200 billion to US$340 billion generative AI adds to overall banking revenues, fintechs need to include a medium to long-term talent strategy and find ways to emphasise change management and adoption,” it stated.
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