Canadian Fintechs Post A Plunge In Investments In The First Half Of 2023

Investments across the Canadian fintech industry witnessed a significant decline during the first half of 2023, according to a report by KPMG. The reduced funding seen in this space affected valuations, which also dropped to levels that had previously not been seen since the start of the pandemic.

Canadian fintechs witness a plunge in investments in H1 2023

Investments in the Canadian fintech industry, including mergers and acquisitions, private equity, and venture capital, reached $353.7 million in 57 deals made during the first half of 2023. The investments in this sector were a plunge from the $1.09 billion reported across 87 deals during the second half of 2022.

The recent figures were also a notable decline from the $834.1 million reported across 109 deals during the same period last year. The report further said that the first half of 2023 was among the weakest periods seen in valuation since the first half of 2020 when the financial markets reacted to the effects of the pandemic.

The metrics also aligned with the challenges witnessed across the global fintech industry during the first half of 2023. During this period, investment plunged to $52.4 billion across 2,153 deals. During the last six months of 2023, the fintech space reported $63.2 billion worth of investments in 2,885 deals.

While commenting on this report, one of the partners at KPMG in Canada, Geoff Rush, also the national industry leader for financial services at the firm, said that the drop in investment continued a downward trend that started in 2022. Rush noted that investors had concerns about the global economy and the potential economic downturn.

“Investors are still quite concerned about the state of the global economy, with fears of a recession, elevated inflation, and interest rates continuing to put a significant strain on valuations, and that’s causing them to pause and reflect on their current investments and strategies,” Rush noted.

Plunge expected in the second half of 2023

Some of the factors influencing the decision made by investors include geopolitical concerns, more so, the escalating tensions between Russia and Ukraine. Earlier this year, several banks in the United States collapsed. The recent bankruptcy of Evergrande might dampen investor confidence further.

The second quarter of 2023 was among the weakest quarters seen across the Canadian fintech space since the fall of 2016. During the quarter, $56.5 million worth of investments were seen across 27 deals. The figure was a massive drop from the $297.3 million seen across 30 deals.

Rush opined that a weak investment environment will still be seen during the second half. As such, the company will likely see an uptick in activity in sectors such as artificial intelligence, blockchain, and machine learning. Rush also said that many financial service firms depending on technology were exploring emerging technologies like generative AI and how they fit within the fintech industry.