Key takeaways

• Regulations

  • SPAA Scheme gained traction; cryptocurrencies subject to sanction violations in the EU: The SEPA Payment Account Access Scheme (SPAA) saw notable progress in Europe, with numerous FinTech Infrastructure startups, such as TrueLayer and Token, aligning with it. The scheme aims to foster an open and competitive European payment system. Moreover, the EU introduced new regulations targeting sanction violations, particularly concerning cryptocurrencies, with potential asset freezing for non-compliance.

• Funding

  • Coinbase’s debt financing round stood out, but overall funding fell again: The FinTech sector saw total funding decline 59% YoY to USD 4.3 billion in Q1 2024 (vs. USD 10.5 billion in Q1 2023). The sector witnessed 10 mega deals (USD 100 million+) similar to Q1 2023, collectively raising more than USD 2.9 billion (~67% of total) with the Neobanks, BNPL, and the Financial Wellness Tools industries accounting for two deals each. The Cryptocurrency industry emerged as the highest-funded industry, primarily due to Coinbase’s massive debt financing round of USD 1.1 billion, with the funds earmarked for paying off its existing debt and cost of capped call transactions as well as for general corporate purposes.

• Product updates

  • Continued adoption of AI-powered products and expansion into new business lines witnessed across multiple industries: During Q1 2024, we counted 10 product launches (nine in Q4 2023) related to AI. These AI launches were particularly notable within the Business Expense Management and Insurance industries, as companies look to incorporate these technologies to automate processes and enhance their offerings. Moreover, other product launches by startups were mainly geared toward complementing existing offerings and expanding into new territories.  Another prominent trend observed throughout the quarter across several industries was startups announcing a significant shift in their strategy and operations, exiting legacy businesses to focus on other business lines. For example, Oxygen terminated its banking activities to focus on health insurance and Zwipe exited the biometric payment industry to focus on biometric access control.

• Partnerships

  • Activities centered around enhancing existing product portfolio and value additions: Most partnership activities within FinTech during the quarter were aimed at forging alliances to develop and/or add new features to complement existing offerings as well as expand market reach. In addition, there was a rising number of partnerships in the InsurTech sector between insurers and infrastructure providers targeted at developing and enhancing underwriting and claims processing capabilities.

• M&A

  • Diversification and acquisition of licenses drove M&A activity: We counted 16 M&A transactions within the FinTech sector in Q1 2024. Most centered around diversifying businesses and enhancing existing product offerings. In addition, within the FinTech: Blockchain sector, companies resorted to M&As as an alternative strategy to quickly obtain licenses to expand offerings and market presence. A promising development this quarter was Virgin Money receiving an all-cash takeover offer worth USD 3.7 billion from Nationwide Building Society. The transaction is pending approval from shareholders.

• Outlook

  • Adoption of AI and GenAI technologies is imperative for organizations to gain a competitive advantage: As GenAI applications continue to disrupt the market, the FinTech sector is poised for significant integration of this technology, including AI. Companies are strategically incorporating these technologies to gain insights from data and to automate and enhance processes to gain a competitive advantage. The first quarter saw a prominent increase in the adoption of AI within InsurTech, as insurers aimed to improve their underwriting and pricing capabilities. We expect the integration of GenAI technologies (such as chatbots) to increase within the FinTech sector for customer service support as well as to assist employees with internal workflows.
  • Funding volumes to gradually recover in 2024: The US inflation rate was recorded at 3.2% for the 12 months ending February 2024 according to the Consumer Price Index, compared with an annualized target of 2%. Analysts are expecting rate cuts of around 70 basis points this year beginning from mid-year. The potential easing of monetary policy is expected to act as a catalyst for funding across FinTech industries, with VC funding likely to favor companies that demonstrate greater efficiency and profitability. Moreover, the tight funding environment over the past year is also expected to lead to startups raising cash later this year, as their cash runways begin to diminish after their efforts to conserve cash. 
  • IPOs to make a return, as investors seek exit strategy: After a subdued 2023 market for FinTech IPOs, marked by valuation markdowns, many startups and investors are now looking forward to going public, as market conditions turn favorable. Several startups, including eToro, Klarna, Monzo, WeBull, and Zilch, have announced plans to list in the next 12–24 months.