The global fintech market, valued at $294 billion in 2023, is projected to reach $1.15 trillion by 2032. UK FinTech attracted $2 billion in H1 2024, highlighting key trends in AI, blockchain, and ESG
As we have now passed the midpoint of 2024, the global FinTech landscape is ripe for assessment. Amid significant market fluctuations, the sector has shown both resilience and innovation. We spoke with Aleksei Glukhov and Evgeny Mishchenko, co-founders of the British FinTech company Payrow, to gain insights into how their predictions for the year have panned out. This article delves into the current state of the global and UK FinTech markets, investment trends, and technological advancements, offering a comprehensive overview of the first half of 2024.
Evaluation of the Global FinTech Market
Despite facing significant uncertainties in 2023, the global FinTech market has shown remarkable resilience and adaptability. According to a report by Fortune Business Insights, the global FinTech market, valued at $294 billion in 2023, is projected to reach a staggering $1.15 trillion by 2032, growing at a compound annual growth rate (CAGR) of 16.5%. This explosive growth highlights the transformative impact of innovations on the financial services industry.
In the report by Innovate Finance, it is stated that the first half of 2024 has seen global FinTech investments reach $15.9 billion across 1,566 deals. While this represents a decline from the second half of 2023, the average deal size of $10.2 million indicates a shift towards early-stage investments. This trend underscores a focus on nurturing robust and sustainable business models, with investors prioritising quality over quantity.
The US retained its dominant position with $7.3 billion in investments, representing 45.6% of the global market share, a figure nearly unchanged from the $7.2 billion recorded in the second half of 2023.
Evaluation of the FinTech Market in the UK
The UK continues to be a major player in the global FinTech landscape. In the first half of 2024, UK FinTech attracted $2 billion in venture capital investment across 184 deals. This marks a significant drop from the $3.2 billion invested in the second half of the previous year, yet the high volume of early-stage deals (167 deals under $20 million) indicates a healthy pipeline of innovative startups.
Established UK FinTech companies such as Starling and Monzo are expanding overseas, while a new generation of startups is emerging at the seed and Series A stages. This trend is crucial for the UK’s FinTech ecosystem, as these early-stage companies represent the future of the industry. The UK government’s support for innovation will be key in nurturing these platforms through to scale.
“The current investment environment in the UK for FinTech startups is active but challenging. Low startup valuations compared to the US and a conservative approach by venture investors do not stimulate rapid growth in the sector. There is a noticeable lack of funding during the growth stages of startups in the UK. However, the UK offers unique advantages for FinTech startups, such as the Talent Visa and early-stage tax incentives like EIS/SEIS, which significantly benefit FinTech companies, founders, and employees at the early stages. Additionally, the UK government has stated its commitment to supporting the industry and has backed the launch of the Centre for Finance, Innovation, and Technology to help remove barriers to sector growth and promote job creation,” comments Evgeny Mishchenko.
Investment Trends in the First Half of 2024
The investment landscape for FinTech in the first half of 2024 has been shaped by various factors, including macroeconomic challenges, higher interest rates, and global political uncertainties. Despite these obstacles, several investment trends have emerged, as highlighted in a new report by KPMG:
- M&A Activity in Payments and Distressed Assets: As valuation expectations stabilise, there has been a resurgence in mergers and acquisition (M&A) activities, particularly in the payments sector. Investors are also seeking opportunities related to distressed assets, driving M&As.
- AI as a Key Priority: The widespread interest in AI and generative AI across various sectors is expected to significantly influence the FinTech market. This may not necessarily translate into direct investments, as market participants might embrace AI through partnerships and product development. Direct investment opportunities are likely to focus on cybersecurity and regulatory technology (RegTech).
- Focus on Enterprise Solutions: A growing number of FinTech companies are prioritising enterprise solutions designed to support financial institutions. This shift reflects a strategic move away from targeting end customers directly to enhancing the financial ecosystem.
- Regulatory Environment Driving RegTech Investments: The regulatory landscape is expected to continue evolving across different regions. Europe is likely to remain a leader in data security and privacy, while the Asia-Pacific region may see jurisdictions establishing clear regulatory frameworks for digital assets and digital currencies. The growing complexity of regulatory requirements is likely to keep investments in RegTech robust.
- ESG Opportunities: Commitments to Environmental, Social, and Governance (ESG) principles continue to drive the emergence of new FinTech companies focused on ESG-related opportunities. Investments in green FinTech, including alternative energy financing and carbon tracking, remain robust.
- Targeting the SME Market: The small and medium-sized enterprise (SME) market has become increasingly attractive to companies in this sector. Solutions aimed at supporting SMEs are expected to attract considerable investor interest, given the significant size of this market segment.
- Asset Tokenisation: The tokenisation of assets is gaining traction within the crypto and blockchain sectors, offering new investment opportunities. Regulated stablecoins are also attracting investor interest, furthering the development of this technology.
- Partnerships and Alliances in the Real Economy: Partnerships and alliances in the embedded finance space are expected to drive renewed interest in FinTech. FinTech data, infrastructure, and platform providers are likely to scale up to meet the demand from the real economy for the distribution of financial services.
- Emerging FinTech Hubs in Developing Markets: Governments in South East Asia, the Middle East, and Africa are expected to increasingly invest in growing their FinTech ecosystems to support their digital economic development, establishing these regions as new hubs.
Main Technical Trends in FinTech
The technological landscape of FinTech is evolving rapidly, with several key trends shaping the industry:
Artificial Intelligence (AI): AI continues to transform the sector by enabling personalised banking experiences and advanced decision-making. AI-driven chatbots, machine learning algorithms, and regulatory compliance tools are becoming integral to FinTech operations. The widespread interest in generative AI is also influencing the market, with these companies embracing AI through partnerships and product development.
Bank Opening: By securely accessing consumers’ banking data, FinTech companies create customised solutions, leading to more personalised services, greater transparency and greater competition.
Biometric Security: As digital financial transactions increase, security measures such as fingerprint scanners, facial recognition, and voice authentication are becoming commonplace. Biometric technologies are being integrated into multi-factor authentication frameworks to enhance security.
Business Process Automation: Financial process automation, particularly in reconciliations, is taking centre stage. Advanced payment reconciliation tools provide real-time accuracy, ensuring financial integrity and freeing up valuable resources for other strategic activities.
Niche Products: Developing specialised products that address specific customer pain points creates unique value propositions and drives growth.
“An important area and trend in FinTech is cybersecurity. For example, Payrow employs solutions and services using machine learning and AI to detect and prevent cyberattacks, enhancing security with multi-factor authentication, including one-time passwords. Payrow continuously monitors for data leaks and implements strict security policies to maintain robust defences. Additionally, FinTech companies partner with specialised cybersecurity firms and startups to access the latest technologies and expert knowledge, helping them stay ahead in the fight against cyber threats. These combined efforts significantly bolster their overall cybersecurity posture,” comments Aleksei Glukhov.
FinTech 2024 – Resilience and Innovation in a Changing World
The FinTech landscape of 2024 combines resilience with innovation. Despite a dip in investment volumes, the focus has shifted to sustainable business models and early-stage ventures, underscoring the UK’s role as a FinTech hub. Technological advancements in AI, blockchain, and biometric security are enhancing efficiency, security, and accessibility in financial services. However, it is essential to consider challenges such as overly stringent or slow-evolving regulations, cybersecurity risks, economic instability, and reduced venture capital. Despite all these obstacles, FinTech must remain agile and innovative, leveraging technology to address market needs and drive economic growth.