The latest global Pulse of Fintech report by KPMG has revealed a significant downturn in investments for Canadian fintech companies, aligning with a global decrease in the sector.
In 2023, Canadian fintechs saw their funding drop to US$920 million across 109 deals, a steep decline from US$1.29 billion invested across 208 deals in 2022. This downturn follows a record high of US$7.15 billion in 2021, signalling a challenging period for the industry.
Georges Pigeon, a partner at KPMG in Canada's deal advisory practice, predicted that 2024 will be a crucial year for Canadian fintechs. “The next six-to-eight months will continue to be slow for fintech investments, which will make it difficult for fintechs that require funding in the near term and force them to rethink how to position themselves to investors,” Pigeon said. “Fintechs that can demonstrate they are sustainable and valuable businesses will have an edge over those that emphasize themselves as quick technology solutions providers.”
Pigeon also highlighted that investment activity is likely to remain sensitive to interest rate changes and expects a boost in investor confidence with the federal government's potential introduction of open banking legislation. However, he cautioned that the impact of open banking on fintech investment would not be immediate, depending on Canadians' acceptance and adoption of open banking practices.
The report, which compiled venture capital, private equity, and mergers and acquisitions data, showed that venture capital-backed investments dominated the fintech landscape in Canada, with early-stage or seed investments forming the majority. The cryptoassets and blockchain space continued to attract the most interest, followed by Software-as-a-Service (SaaS) fintechs and those focusing on artificial intelligence and machine learning.
Edith Hitt, a partner in KPMG's advisory practice with a focus on banking technology, pointed to sustained investor interest in cryptoasset fintechs, partly driven by anticipation of regulatory approvals such as the SEC's potential nod for a Bitcoin Exchange Traded Fund (ETF) in the United States.
“The approval of a Bitcoin ETF in the United States could help boost investment in Canadian fintechs and help drive new technological advancements in the digital assets space,” Hitt said.
Moreover, Hitt highlighted the significant investment in blockchain infrastructure as indicative of investor interest in the future potential of digital currencies, such as a central bank digital currency in Canada. She remained optimistic about the future of Canada's fintech ecosystem, citing healthy revenue-generating, rapidly expanding fintechs, a strong technology talent base, and a supportive innovation agenda.
Globally, fintech investment saw a downturn, with US$113.7 billion invested across 4,547 deals in 2023, down from $196.6 billion across 7,515 deals in 2022. This reduction reflects broader market challenges, including economic slowdown, market volatility, and geopolitical tensions, impacting fintech investment worldwide.