Singapore’s fintech sector has witnessed an extraordinary surge in funding for artificial intelligence (AI) technologies, despite a global downturn in fintech investments, KPMG said Tuesday.

The KPMG Pulse of Fintech report revealed that AI fintech funding in Singapore skyrocketed to an impressive $333.13 million in the second half of 2023, marking a significant 77 percent increase from the $148.08 million recorded in the first half of 2023.

This culminates in a total AI sector investment of $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.

On a broader scale, Singapore’s fintech sector amassed total funding of $2.20 billion, inclusive of mergers and acquisitions (M&A), private equity, and venture capital deals in 2023.

This represents a substantial 68 percent decrease from the $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 the second half of 2023, with funding falling by 64 percent, from $1.46 billion across 102 deals to $747 million across 87 deals.

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 also 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 $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.

Despite experiencing a decline from the previous year, the crypto/blockchain subsector remained the top fintech focus in Singapore in 2023.

Investments totalled $626.8 million across 88 deals, compared to $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 finalized. This resulted in approvals being granted to Paxos and StraitsX to issue regulated USD and SGD stablecoins.

Singapore’s insurtech sector also experienced a significant surge in investment during the second half of 2023, marking a 194 percent increase to $284.1 million from $4.1 million in the first half of 2023.

A total of four deals were struck, amounting to $288.2 million, with Bolttech, a Singapore-based insurtech firm, securing the largest investment through a $246 million early-stage venture capital round.

The sector has seen a strategic shift towards catering to the small and medium-sized enterprises (SME) market, capitalizing 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 business to business (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 $984.78 million in 2022 to $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.

KPMG : Asia Pacific region sees fintech investment fall more than 75 percent