Singapore clinches 6.4% of Q2 fintech deal value despite funding winter: KPMG

SINGAPORE has captured a bigger slice of global investments into fintech. The city-state grew its market share by deal value to 6.4 per cent in Q2 2022, up from 3.1 per cent in 2021, according to an analysis by KPMG.

Industry players The Business Times spoke to attributed the growth to Singapore’s strong regional leadership on several fronts, including regulation and business-friendly environment. But they noted that not all fintech segments are beneficiaries.

In a press release on Wednesday (Jul 13), KPMG noted that investors invested US$210 billion across fintech segments in 2021 and another US$108 billion in the first half of this year.

Singapore has also ramped up its market share in global fintech funding by the number of deals, from 3.4 per cent in 2021 to 5.1 per cent now. Deal sizes have grown 10 per cent to average US$43.9 million, up from US$39.8 million in 2021. Deal activity for H1 was the second-highest on record, behind H1 2021.

The increased activity comes as investors have grown more discerning as the market heads into a “funding winter”. Rising interest rates have sharpened the investment theses of venture capitalists, as the higher cost of capital redirects their funding towards higher growth markets and the next wave of tech transformation, KPMG said.

“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,” said Anton Ruddenklau, global head of fintech at KPMG International.

There were 1,007 operating fintech companies in Singapore as of June, accounting for 67 per cent of the total number across South-east Asia.

Tan Yinglan, managing partner of Insignia Ventures Partners, noted that Singapore’s regulatory leadership has attracted regional fintechs to headquarter in Singapore, even if their primary target markets do not include the city-state.

“Singapore's economic positioning as a hub of trade and capital in South-east Asia, where many markets are also seeing relative insulation from the slowdown, also contributes to this,” he added.

Christopher Quek, managing partner of venture firm Trive, attributed the strong fintech investments in Singapore to “growing demand for fintech solutions by the mass affluent markets in South-east Asia”.

Winners and losers

While Singapore’s overall fintech funding is strong, industry players said the rising tide will not lift all boats. Tan expects that in this current climate, investors would be drawn to fintechs that can diversify in terms of product, monetisation streams and market expansion, and that have built a path to profitability.

Meanwhile “fintechs that are just banking on single-flavour monetisation, and thin margins at that” are likely to have a harder time in the funding winter.

“Lending startups entirely dependent on external capital and vanilla lending propositions are a prime example, as these models need massive scale to recuperate the costs of lending, which may be more difficult to achieve in the current market environment,” he said.

One lending startup, Swedish buy-now-pay-later (BNPL) company Klarna, recently raised money at a valuation 85 per cent below its price tag last year.

Turochas Fuad, founder of Singapore-based BNPL player Pace, believes the segment is poised to see continued investor interest due to its nascent stage – with BNPL transactions comprising less than 0.5 per cent of credit and debit card payments in Singapore last year.

But Quek of Trive is much less optimistic. He sees BNPL and payments startups being hit, due to weak fundamentals, increased regulation or industry consolidation.

He does, however, expect funds to still be plentiful for the right startups. “I doubt there will be a funding winter for fintech companies in Singapore due to the excessive dry powder. Many still view this period as cyclical and the funding will return to fintech companies in the attractive segments,” he said, citing roboadvisors as an example.

Yorlin Ng, chief operating officer of venture builder Momentum Works, also reckons that consumer fintechs that are not part of an ecosystem, or have not built their own ecosystem of multiple use cases, will probably face more scrutiny.

“Software, risk control and other companies serving consumer lending companies might be impacted as well,” she said.

KPMG believes private equity and venture capital players are now focused on fintech that can generate stable income streams and fuel the coming decades’ industry transformation,

It also noted that environmental, social and governance factors are growing in importance, with segments such as agritech, carbon markets, sustainable finance and data services forecasted to attract investments at a compounded annual growth rate of up to 150.9 per cent between 2017 and 2021.

KPMG expects South-east Asia will be one of the largest deal markets in Asia-Pacific, potentially translating to the 2023 initial public offering market. Listings of special purpose acquisition companies on the Singapore Exchange may also further catalyse the public market, it said.