Market turbulence, inflation, geopolitical uncertainty prompt dip in fintech investment: KPMG

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Fintech: A recession-proof investment?

Nicole Valentine, fintech director for the Milken Institute’s Center for Financial Markets, talks about investing in the financial technology space.

Global investment in fintech tumbled in the first half of 2022 as investors contended with geopolitical uncertainty, turbulence in the public markets, scorching hot inflation and rising interest rates.

According to KPMG's Pulse of Fintech report released in September, total fintech investment fell from $111.2 billion in the second half of 2021 to $107.8 billion in the first half of 2022. 

According to KPMG’s Pulse of Fintech report released in September, total fintech investment fell from $111.2 billion in the second half of 2021 to $107.8 billion in the first half of 2022. (Photo courtesy of iStock) (iStock / iStock)

The firm notes that the Asia-Pacific region saw total fintech investment more than double from $19.2 billion in second half of 2021 to a record $41.8 billion in the first half of 2022, with Block Inc's acquisition of Australia-based Afterpay accounting for more than half of the total.

FILE PHOTO: The Afterpay app is seen on the screen of a mobile phone in a picture illustration taken August 2, 2021. (REUTERS/Loren Elliott/Illustration) ((REUTERS/Loren Elliott/Illustration) / Reuters Photos)

Meanwhile, both the Americas and Europe Middle East & Africa (EMEA) regions saw fintech investment dip from $59.7 billion to $39.4 billion and from $31.6 billion to $26.6 billion, respectively.

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Despite the sector's recent funding slump, Nicole Valentine, fintech director of the Milken Institute's Center for Financial Markets, believes the space is "recession proof".

"I will still be using my fintech products and solutions during the looming recession," Valentine told FOX Business. "All of the innovators in fintech that are still building upon and solving for the issues that exist within the friction that happens in our transactions, that's something that the next unicorn will come out of." 

When it comes to investing in fintech, Valentine is looking at Western African companies that are solving for big problems, can easily scale their solutions and have an experienced team behind them. 

"There's so many great unicorns that are in the making there," Valentine said. "I really like companies that have already kind of raised capital. Flutterwave, Chipper, they've done really well. And I think that we should continue to look at emerging markets and emerging economies and how they're solving for their fintech issues."

In this photo illustration the Flutterwave logo of a payments company is seen on a smartphone and a pc screen. (Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images) ((Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images) / Getty Images)

She is also hopeful about the future for early stage fintech companies. 

"I predict that there'll be a lot of early stage fintech companies that come out of this tough time," she added. "Crisis and tough times are the mother of invention. And so we're going to see a lot of inventive fintech companies come out looking to solve for still a lot of the issues that exist in the space."

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As valuations come under pressure, Anton Ruddenklau, KPMG International's global head of financial services innovation and fintech, warns that investors will be focused on cash flow, revenue growth and profitability, making it difficult for some firms in the space to raise funds.

"M&A activity, however, could see an uptick as struggling fintechs look to sell rather than holding a downround, corporate and PE investors move to take advantage of better pricing, and well-capitalized fintechs look to take out the competition," Ruddenklau added.

Areas where KPMG expects fintech investment to remain resilient include business-to-business payments, cybersecurity automation and data-driven analytics.

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