M&A and Buyouts Outshine Fintech VC deals

🍿 Quick Snack

Last week we covered fintech funding around the world for the first half of 2024.

On this issue, we cover funding activity by vertical in more detail. Th

• 📉 In the first half of 2024, we’ve experienced the lowest 6 months of fintech investment since the first half of 2020.

• 💳 Payments attracted the largest share of fintech funding globally ($21.4 billion invested across 231 deals).

• 📝 Regtech was the only fintech vertical to see an increase in investment in the first half of 2024, plus it already surpassed it’s 2023 total with $5.3B.

• 🔐 Cryptocurrency had the highest number of deals was Blockchain/Crypto with 677 funded companies.

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🍔 The Full Meal

H1’24 Fintech Funding Activity by Vertical

Payments ($21.4B across 231 deals)

• In Payments, there was very limited interest in making VC investments.

• Investment activity was concentrated on M&A and buyouts as investors prioritized consolidation to scale and drive expansion activities.

Select Deals:

• AI for fraud prevention was a key focus for investors in this vertical. This is because (1) there has been an intensifying focus on instant payment in different jurisdictions and (2) due to the rising number of cross border transactions.

• For example:

  • The European Union adopted a new regulation that will make instant payments fully available to consumers and businesses in EU and EEA countries. The goal is to help reduce excessive reliance on third-country financial institutions and infrastructures.

  • Mastercard announced its use of generative AI to accelerate card fraud detection

  • Swift announced AI-based pilots with global banks to enhance fraud detection in cross-border payments.

Regtech ($5.3B across 134 deals)

• Regtech was the second most attractive vertical in fintech.

• Investors perceive regtech as a space with sustainable growth given the growing pressure on financial services companies to comply with increasingly complex and detailed regulatory requirements.

• There is also increasing interest in Regtechs providing solutions fit for multi-jurisdictional requirements.

Select Deals:

Note: In recent years, Regtech has been expanded to include applications in ESG, Cybersecurity, and Data Privacy.

Blockchain/Crypto ($3.2B across 677 deals)

• In the US, investments in this vertical focused primarily on cryptocurrency regulation, while in EMEA and ASPAC digital currencies and real-world digital asset tokenization were favoured.

Select developments in this vertical include:

• The launch of Phase 2 of the e-HKD pilot project by the Hong Kong Monetary Authority.

• The European Central Bank (ECB) published a report on its progress towards a digital euro.

• The Securities Exchange Commission (SEC) approved a number of spot Bitcoin ETFs, leading to an increase in institutional money flows in the space. Spot Ethereum ETFs are expected to be approved during H2’24.

Select Deals:

Insurtech ($1.6B across 113 deals)

• The US attracted the vast majority of insurtech deals and funding globally.

• However, insurtech funding fell to the lowest level in a decade with just $1.6B in investment globally (less than a quarter of the $8.2B seen in 2023).

• Despite the fall in investment, investors continued to show interest in embedded insurance given the perceived potential POS insurance offerings.

• Other areas of interest include:

  • Cybersecurity as insurance carriers look to expand their capabilities towards writing cyber insurance

  • Managing General Agent (MGA) insurtechs continued to attract money given their strong business models (they carry no risk on their balance sheets)

Select Deals:

Cybersecurity ($640M across 40 deals)

• Investment levels in this vertical are on pace to match the second best year for cybersecurity deal volume in history

• AI was key area of interest for investors, mainly focused on AI-driven risk intelligence platforms and AI-powered supply chain security solutions.

• Investors also showed interest in cybersecurity solutions to protect and safeguard AI activities such as ensuring the security of AI algorithms and protecting the integrity of data being used by GenAI models.

• Something important to note is that It is becoming more challenging for niche cybersecurity players to get attention and receive the funding they require to scale. As a result, this is expected to drive further consolidation in the space.

Select Deals:

Wealthtech ($100M across 18 deals)

• Globally, investors for this vertical have focused on self-directed wealth management solutions tools and tools to enable individual investors

• More and more, we should also expect to see a convergence between wealthtech and healthtech solutions driven in part by insurance companies gamifying insurance products. For example, health tracking apps are integrating mechanisms that provide savings, discounts, or other types of rewards to their users.

• AI applications in this vertical has mainly focused on enhancing back-office activities. There is also growing interest in the use of AI to support data analytics, robo-advisory services, and the automation of investment processes.

This content is a summary of KPMG’s global analysis of fintech funding. You can read the full report here.

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