Singapore’s fintech sector has witnessed an extraordinary surge in funding for artificial intelligence (AI) technologies, despite a global downturn in fintech investments.
The KPMG Pulse of Fintech H2’23 report reveals that AI fintech funding in Singapore skyrocketed to an impressive US$333.13 million in H2’23, marking a significant 77 percent increase from the US$148.08 million recorded in H1’23.
This culminates in a total AI sector investment of US$481.21 million across 24 deals in 2023 in Singapore. Amidst this AI funding boom, companies have been rapidly innovating and launching AI-driven products to secure a competitive advantage.
In contrast, global fintech investments in the AI subsector experienced a slowdown, plunging from US$28.1 billion in 2022 to just US$12.1 billion in 2023.
However, this decline in direct investment does not reflect a dwindling interest in AI. Many financial institutions and fintech firms worldwide have chosen to harness the power of AI through strategic alliances and product expenditure, rather than direct investment, throughout 2023.
On a broader scale, Singapore’s fintech sector amassed total funding of US$2.20 billion, inclusive of mergers & acquisitions (M&A), private equity (PE), and venture capital (VC) deals in 2023. This represents a substantial 68 percent decrease from the US$4.4 billion raised in 2022.
Deal activity also saw a sharp decline, halving to 189 in 2023 from the previous year. This downward trend was particularly pronounced in H2’23, with funding falling by 64 percent, from US$1,455 million across 102 deals to US$747 million across 87 deals.
“The fintech market floundered somewhat in 2023, buffeted by many of the same issues challenging the broader investment climate. While there were still good deals to be had, investors were definitely sharpening their pencils—enhancing their focus on profitability,” said Anton Ruddenklau, Global Head Fintech and Innovation, Financial Services, KPMG International.
“While it was a depressed year for the fintech market overall, there were a few particularly bright lights. Proptech, ESG fintech, and investors embraced AI-focused fintechs—which helped particularly in the last six months.”
This marks the slowest performance for fintech funding since the Covid-19 year of 2020, when only US$1.13 billion was raised across 183 deals. The dampened investor sentiment can be attributed to geopolitical conflicts, a high interest rate environment, and a lacklustre exit environment across regions, which prompted fintech investors to exercise caution and conserve their cash reserves throughout 2023. Furthermore, the increased scrutiny of potential fintech deals, with an emphasis on profitability and avoidance of down rounds, further shaped the funding landscape in 2023.
Singapore Continues to Dominate Asia Pacific’s Fintech Landscape in 2023
Despite a widespread slowdown in the fintech sector, Singapore has emerged as a leader in the Asia Pacific region, accounting for a substantial 21 percent of all fintech deals in the area. This reinforces its reputation as a premier fintech hub in Asia.
The year 2023 saw some significant fintech deals in Singapore. A venture capital deal with digital bank AnextBank topped the list, raising an impressive US$359 million. Close on its heels was insurtech firm Bolttech, which secured US$246 million in funding.
Furthermore, the resilience and evolution of Singapore’s fintech sector in 2023 were truly commendable. In an environment fraught with challenges, investors shifted their focus towards early-stage companies, resulting in 74 deals, and seed funding, leading to 63 deals. These transactions were primarily responsible for smaller deal sizes.
This trend underscores a strategic move by investors to diversify risk while remaining committed to exploring, learning, and assessing the commercial viability of a diverse array of next-wave fintech business models.
Crypto Continues to Attract Singapore Investors Despite Challenges
Despite experiencing a decline from the previous year, the crypto/blockchain subsector remained the top fintech focus in Singapore in 2023. Investments totalled US$626.8 million across 88 deals, compared to US$1,169.8 million across 131 deals in 2022.
This indicates that even amidst a challenging environment, Singapore remains resolute in its dedication to progressing the crypto space. The nation strikes a careful balance between fostering innovation and implementing necessary regulations.
This commitment was particularly evident in H2’23. Singapore rolled out new requirements aimed at safeguarding customer assets held by Digital Payment Token providers. Additionally, the regulatory framework for stablecoins was finalised. This resulted in approvals being granted to Paxos and StraitsX to issue regulated USD and SGD stablecoins.
Insurtech and Payment Sectors in Singapore Demonstrate Resilience Amid Market Fluctuations
Singapore’s insurtech sector experienced a significant surge in investment during H2’23, marking a 194 percent increase to US$284.1 million from US$4.1 million in H1’23. A total of four deals were struck, amounting to US$288.2 million, with Bolttech, a Singapore-based insurtech firm, securing the largest investment through a US$246 million early-stage VC round.
The sector has seen a strategic shift towards catering to the small and medium-sized enterprises (SME) market, capitalising on the untapped potential within this segment. However, the success of these insurtech firms will hinge on their ability to navigate the inherent complexities of insurance products.
In an apparent pivot, insurtech firms are now focusing on addressing specific pain points within the insurance value chain, including claims management, rental market solutions, and broker enablement. This B2B-oriented approach deviates from direct competition with incumbent insurers and is expected to gain further traction, indicating a strategic evolution within the insurtech landscape.
Despite a considerable drop in annual investment—from US$984.78 million in 2022 to US$186.13 million in 2023—the payments sector sustained one of the largest shares of fintech investment in Singapore. The resilience of this sector is evidenced by the stability in deal volume, maintaining 23 deals in 2022 and slightly increasing to 24 deals in 2023.
While the overall investment size has declined, the consistent level of interest and activity indicates that the payments sector remains a critical component of the fintech ecosystem. Fintech firms operating in this space continue to adapt to evolving market dynamics, regulatory changes, and heightened competition, which have led to adjustments in funding strategies.
