Research from CB Insights, the business analytics platform, has revealed that global fintech funding in Q1’24 shows worrying trends for the rest of the year. Nonetheless, the industry has shown resilience and many still believe this to be the comeback year for fintech following 2023’s decline – we want to find out why.
The research published indicates that since 2021, fintech funding has dropped considerably. Three years ago, 6,392 deals were made valuing $144.4billion, The following year saw a decrease in deals (5,547 in total) and funding by $60billion to total $80.4billion. 2023 saw another drop with only 3,973 deals and $40.5billion in funding.
Q1’24 has had a rocky start as the quarter only saw 904 deals and $7.3billion in funding take place. This has been the worst-performing fintech quarter since the start of 2020.
However, many across the fintech industry remain optimistic.
Against all odds…
In January 2024, Innovate Finance, the independent industry body for UK fintech, released its FinTech Investment Landscape 2023 report and hosted a panel discussion looking to the future. It concluded with every panellist confidently agreeing that 2024 would be a turnaround year for fintech investment, with all believing the UK would raise more than $5.1billion (2023’s total funding value) this coming year. The report also stated that the UK completed 409 deals in 2023.
The UK is not the only country still believing in the sector. A similar positive sentiment was shared in LatAm. Mike Packer, partner and head of LatAm at QED Investors, explained why he believed the region was also set to take off in 2024.
“The business models have improved. We’re seeing companies achieve profitability at scales and levels that no one knew could be done. Between 2022/23, there was a big question if these companies could get to profitability, and now we’re seeing it happen. That’s giving a lot of confidence to the investor to evaluate the business models in the region.
“The second key point is growth. So you know, growth has been challenging in all the sectors and we’re starting to see in some of these sub-themes and some new geographies, with tailwind growth coming back.”
Looking at the rest of 2024
The CB Insights report continues to analyse the global investment landscape: it indicates that the fintech sector is following global trends. Global investment levels have dropped with Q1’24 being the worst-performing quarter barring Q4’23.
To understand if the fintech community should be concerned about the low level of investment, we reached out to industry experts.
Capitalising on new technology
According to Martin Hartley, group CCO of emagine Consulting, a high-end business consultancy firm specialising in the financial services sector, the secret for fintech funding’s revival lies in the technology being offered.
“I believe that fintech companies need to have a niche offering to spark interest and to demonstrate an ability to solve a problem that the market is experiencing. They must demonstrate a high growth rate and aggressive appetite for a fast and profitable sale. Fintechs should also make it clear that they can solve issues quickly by utilising secure AI, such as providing secure payment methods that are user-friendly and help customers become more efficient.
“Banks and financial services companies need KYC and AML processes to be embedded in their business models and that’s where fintech’s lead the way and offer solutions. I believe the rise in AI will lead to greater investment in the sector due to consumer demands as we can’t achieve the desired customer journey without them.”
Challenges remain
Fintechs will constantly be battling others to secure funds, and with many investors buying into hype like generative AI, those offering something else may struggle to find funding. However, organisations in emerging markets may have more luck explains, Khalid Machchate, chairman of K&W Technology Group, the international consulting, capacity building, and solutions procurement group.
“I believe fintechs will still have a difficult time fundraising in 2024, and will potentially have a slow recovery post 2025. This is not to say that there won’t be outliers, which we see mainly in emerging markets, with core life solutions such as border-crossing remittances. However, the general trend is ‘bear’ when it comes to the rest of the fintech space, BNPL getting the biggest share of clear failures, the rest either settling with down rounds or struggling to raise cash at all.
This coupled with the ongoing recession in global markets, the persisting inflation, the geopolitical downward spiral, and the huge hype over generative AI taking what’s left of the VCs’ purses will only drag down the recovery slope and elongate its timeline.”
Success lies in partnerships
For Anna Kuzmina, founder of ‘What the Money?’, the fintech consultancy bureau, firms’ success lies in ensuring they have strong partnerships going forward.
“Fintech’s success hinges on its ability to adapt to the post-‘free money’ era. While investor funding was once abundant, sustainable monetisation strategies are now essential. To ensure recovery and progress beyond 2024, fintech companies must generate consistent revenue streams and operate independently. This can be achieved by creating value-added services, fostering partnerships with traditional financial institutions, or exploring revenue-sharing models with other tech firms.
“The goal is to offer a unique value proposition that customers are willing to pay for. The times of ‘free money’ have passed, paving the way for a new era of opportunity. Companies that innovate, adapt, and find viable, sustainable monetization models will thrive. Thus, 2024 may indeed be fintech’s year, but it will be dominated by companies that have proven their worth and sustainability, rather than those reliant on investor funding.”
We will see recovery but we can’t get ahead of ourselves
2024 fintech funding will not be as bad as 2022 or 2023 according to Mike Ward, executive chairman at Armalytix, the UK fintech specialising in anti-money laundering and affordability checks. However, it is unreasonable for funding expectations to return to 2021 levels as he explains that estimations may be a bit ambitious.
“I believe the funding environment will improve in 2024, however, it will remain challenging for many fintech firms. Funding expectations for 2024 have got ahead of themselves, in my opinion, and although 2024 will improve somewhat from the lows of 2022 and 2023, we are not returning to the heady days of 2021 and 2022 anytime soon or even ever.”
Further explaining if the best is still to come, Ward added: “For the very best firms yes, I am sure, but no I do not see, nor should there be a return to the heady days. Too much money was poured into fintechs without the appropriate scrutiny and due diligence. I doubt investors will forget that painful experience in a hurry.”
Francis Bignell
