Articles & Papers
FinTech Trends Report: PE/VC
Perspectives from Boyden’s FinTech Experts
Global FinTech PE/VC Activity Trends and Local Market Implications
Lopez: From the observations in global FinTech investment strategy shifts that Private Equity and Venture Capital firms are experiencing, how do these trends compare to local market observations?
Friederich (Germany): Regtech is gaining momentum with investors, signaling an increasing emphasis on regulatory compliance within the FinTech sector. Concurrently, there's a noticeable surge in investment targeting fintech solutions aligned with ESG and climate change priorities, particularly evident in Germany. This growing trend underscores a broader shift towards sustainable finance and responsible investing. Meanwhile, seed and early-stage companies continue to attract attention and investment, with larger deal sizes becoming more common. However, IPO and M&A activity remain subdued, facing downward pressure on valuations well into H1’24, reflecting cautious investor sentiment amidst market uncertainties. Beyond traditional FinTech domains, blockchain solutions outside of the crypto space are also gaining traction, highlighting their potential for diverse applications across industries. Moreover, there's a discernible uptick in focus and investment within the B2B and embedded solutions space, encompassing areas like embedded finance, payments, and insurance. Notably, the expansion efforts of FinTech companies, particularly from the Nordics, into the German-speaking area, exemplified by ventures like Findity, underscore the increasing globalization of the FinTech ecosystem.
Lopez: What specific areas within FinTech and PE/VC are experiencing the most significant growth and disruption?
Salah (MENA): The specific areas experiencing significant growth and disruption include the integration of AI and advanced technology in fintech platforms, leading to improved efficiencies, lowered costs, and enhanced user experiences. Private Equity firms have recognized the extensive value of AI in their portfolio companies, utilizing it to improve deal sourcing, streamline due diligence procedures, and optimize monitoring and other operational tasks. Additionally, fintech has facilitated financial access in emerging markets, particularly in payments and remittances, with mobile adoption rates in regions like Africa and Latin America leveling up to developed markets.
Dennis (U.S.): Over the past few years, we've witnessed substantial growth in the consumer and commercial payments sectors, particularly in North America. Although there are still ample opportunities, especially in B2B payments, the fintech landscape is evolving rapidly. Competition for funding is intensifying not only within the payments sector but also from various other sectors. Although we anticipate continued growth in payments, other sectors are rapidly catching up. With cybersecurity emerging as a top priority for businesses across industries, it's unsurprising to see fintech companies offering cutting-edge fraud prevention and cybersecurity solutions attracting significant investment. Additionally, spend management is witnessing notable growth, as CFOs seek more advanced, AI-driven tools to track expenditures and achieve cost savings, especially given the uncertain long-term outlook for the global economy.
Lopez: Are there discernible changes in the types of fintech startups receiving funding on a global scale, and how does this trend translate to the local market?
Dennis (U.S.): While various factors influence which startups secure funding, there appears to be a resurgence of mission-driven organisations. While financial and business KPIs drive a significant portion of investment decisions, the final verdict often hinges on intangible elements such as company mission and leadership's ability to articulate and sell their vision. Financially viable organisations capable of attracting and retaining a loyal customer base around a shared mission—whether environmental, educational, or health-related—tend to stand out and present a more compelling long-term investment opportunity than those solely competing on financial metrics.
Friederich (Germany): B2B solutions continue to be a focal point for investment, driven by companies across various sectors striving to enhance efficiency and deliver greater customer value. Additionally, interest in non-crypto blockchain-based solutions is on the rise as investors reassess their investment strategies amidst market volatility. Areas such as cross-border payments, gaming, and NFTs are gaining traction within the blockchain space, offering avenues for innovation and investment beyond cryptocurrencies. Furthermore, AI-driven fintech solutions are garnering increased attention from investors, particularly in realms like data analytics, risk assessment, and customer engagement, reflecting the growing importance of AI in driving financial innovation. However, alongside these developments, regulators are expected to intensify scrutiny on the crypto space following events in 2023, shaping investor behavior and market dynamics. Lastly, the growing emphasis on ESG priorities is fueling interest and investment in ESG-focused fintechs. From financing platforms for renewable energy projects to ESG-focused regtech solutions, diverse investment opportunities are emerging to address pressing environmental and social challenges.
Lopez: How are local firms leveraging innovative strategies and technologies such as AI-driven underwriting or Digital Identity?
Salah (MENA): It is being utilized to enhance operations and offerings. The adoption of AI is seen as essential for remaining competitive, with CEOs acknowledging its importance in driving efficiency and creating value. This sentiment extends to Private Equity firms, which are utilizing AI to transform their investment strategies, from deal sourcing to operational optimization. Moreover, the integration of AI in fintech platforms is expected to drive continuous growth in AI startups securing private equity funding, with genAI projected to achieve a 73% CAGR until 2027.
Dennis (U.S.): Firms are integrating new technologies into their existing products and services to capitalize on potential cost savings and offer enhanced customer experiences. However, the need for speed is crucial. Unlike many other emerging technologies, consumers are highly aware of the capabilities AI can bring and often expect their service providers to adopt immediately or already be utilizing. With technological advancements, customers have little patience for traditional processes like filling out forms for appointments or visiting a bank branch for loan paperwork when these tasks could be completed digitally via a smartphone app. Whether firms embrace it or not, these digital capabilities are rapidly becoming essential in a technology-driven world.
Lopez: Considering the growing opportunities in emerging markets like Southeast Asia, Africa, and India, what strategies should local fintech startups employ to effectively tap into these markets? Are there any challenges hindering the expansion into emerging markets?
Friederich (Germany): In Asia-Pacific jurisdictions with strong crypto regulatory environments such as Japan, Singapore, and Hong Kong (SAR), startups can attract interest from crypto players and investors, especially post-FTX meltdown. I’d add that emphasizing the development and growth of B2B fintech offerings aligns with the increasing investor and fintech focus in this area, offering scalable solutions for businesses. Lastly, the payments sector, attracting the largest deals in the region, presents an opportunity for startups to innovate and cater to the growing demand for seamless payment solutions.
Salah (MENA): Despite significant strides made in providing financial access in emerging markets, challenges persist due to slow financial regulatory upgrades to match technology adoption. While fintech has facilitated financial access, particularly in payments and remittances, regulatory frameworks in emerging markets lag behind technology adoption rates. Mobile adoption rates in regions like Africa and Latin America are leveling up to developed markets, with technology adoption by consumers reaching 76% post-pandemic in 2023. However, regulatory hurdles hinder the full realization of fintech's potential in these markets, posing challenges for local fintech startups looking to tap into emerging market opportunities.
