The first half of 2024 turned out to be challenging for the financial technology (fintech) market around the world due to fears of geopolitical instability and high interest rates.

Total global investment fell from $62.3 billion to $51.9 billion between the second half of 2023 and the first half of 2024, the largest decline in four years.

All regions experienced a marked decline in fintech investment, but the EMEA (Europe, Middle East and Africa) region was the hardest hit, with investment falling from $19.4 billion to $11.4 billion.

Fintech investors have been noticeably cautious in the first half of 2024. During this period, there were only five deals worth more than $1 billion, and all of them were related to takeovers. This trend reflects the desire of large players to minimize risks in the face of uncertainty. However, in the Americas and Asia Pacific (ASPAC), deal volumes still showed growth compared to the end of 2023, which inspires some optimism for the second half of the year.

When analyzing the fintech market, it is advisable to analyze the following segments:

Payments segment;
Insurtech Segment;
Regulatory Technologies Segment (Regtech);
Cybersecurity segment;
Wealth Technology segment;
Cryptocurrency and Blockchain segment.
At the sector level, the payments segment continued to attract the largest share of fintech funding, raising $21.4 billion in the first half of 2024. However, at the same time, the regtech segment was the only major fintech subsector to show an increase in investment in the first half of 2024 with a total investment of $5.3 billion, which has already exceeded the total investment for 2023, which amounted to $3.4 billion.
FINTECH segment — Payments
Analyzing the latest trends in the payments segment, it is worth noting a change in the vector of investor sentiment from making significant large venture capital investments to mergers and acquisitions (M&A) aimed at consolidating activities aimed at scaling and expanding activities. During the first half of the year, only two major deals in the U.S. market, totaling $18.8 billion, can be singled out: GTCR's $12.5 billion buyout of a controlling stake in U.S. payment processing company Worldpay and the $6.3 billion acquisition of Canada's Nuvei by private equity firm Advent International.

The general global trend in the development of the payment segment is primarily associated with the growing interest in the development of artificial intelligence technologies, and the possibility of its application to solve problems related to payment transactions. For example, in the first half of 2024, Mastercard announced the start of using artificial general intelligence that is able to think and act like a human (artificial general intelligence) to speed up the detection of fraudulent actions with payment cards.
   
In addition, SWIFT announced the launch of an AI-based pilot project aimed at combating fraudulent activities in cross-border payments.

It is necessary to note significant regional differences in the key trends in the development of the payment segment. In African and Southeast Asian countries, the main focus is on the digitalization of payments, given the significant share of cash use. In other regions, the development of the payment segment implies a much wider range of services provided, from instant (including cross-border) payments to analytical solutions to support data monetization and commercialization. For example, the Bank of China piloted a new service during the first half of 2024 that allows merchants to accept digital currency payments to their mobile phone accounts.

What does the future hold for the payments segment? According to experts, the main vectors of development of the segment in the near future are primarily related to:

increased regulation of the industry;
modifying a risk management strategy with a focus on fraud prevention;
implementation of a single payment environment in real time;
modernization of the B2B payments segment combined with the growth of cross-border payments;
an increase in the volume of instant transfers between customer accounts;
expanding the use of artificial intelligence in terms of combating fraudulent activities.

FINTECH segment — Financial technologies in insurance
Investment in insurance technology fell significantly in the first half of 2024, with only $1.6 billion invested globally, less than a quarter of the investment made in 2023. Most insurance technology transactions are carried out in the US market. During the 1st half of 2024, cyber insurance company Corvus was acquired by Travellers for $427 million. In addition, insurance company Kin raised venture capital for a total of $151 million, and Cover Genius raised $80 million.

The overall global trend shows that the entire Insurtech segment has faced increased difficulties in obtaining financing for companies at the initial stage of their development. Investors are paying more interest not to start-up companies, but to more mature market participants.
   
Despite the general decline in the level of investment in the insurance business, the most attractive opportunities for investors remain in the field of embedded insurance. Essentially, embedded insurance is an innovative approach that combines the sale of an underlying product or service and the sale of insurance coverage that is embedded directly at the point of sale, thereby eliminating the need for the buyer to search for or purchase additional insurance products. Thanks to advances in technology, insurance companies are now able to offer customized insurance solutions across a variety of platforms and services, making insurance more accessible, convenient, and contextualized for consumers.

Key benefits of built-in insurance:

optimization in calculating the level of insurance risk and, as a result, optimization in the cost of insurance products, taking into account the digital profile of the buyer;
reducing costs in the provision of insurance services;
increasing market coverage;
ready-made mobile and web applications through which insurers can offer policies and services directly to potential customers.
There is also a high interest in cybersecurity in the Insurtech market, both in terms of the need to form protective mechanisms, given the growth of cyberattacks aimed at the insurance industry, and in terms of the formation of proposals from insurance companies seeking to expand their product lines by offering insurance products in the field of cyber insurance.

From the point of view of investors, the field of managing general agent (MGA) remains attractive. An MGA is an agent authorized by an insurance company and has the authority to manage all or part of an insurer's operations in a particular territory. This business model is attractive to investors due to the specifics of the business model in which insurance risks do not remain on the balance sheet of the MGA and the high potential for business efficiency growth.

Forecasts for the development of the insurance segment in the future are related to:

expanding the scope of artificial intelligence;
expanding the scope of fintech insurance products for the Asia-Pacific region;
growth in the volume of built-in insurance, focusing on cybersecurity issues.

FINTECH segment — Regulatory technologies
According to the generally recognized approach, the regulatory technology segment includes solutions aimed at combating fraud, money laundering, and customer identification. However, in recent years, this segment has expanded quite a lot and additionally began to consider regulation in the field of sustainable development (ESG technologies), cybersecurity and privacy of personal data as its goal.

Investments in regulatory technologies during H1 2024 amounted to $5.3 billion, making it the second most attractive fintech sector after the payments segment. A large share of the investments made in the 1st half of 2024 falls on the buyout of the British IRIS Software Group for $4 billion by the investment company Leonard Green & Partners. The second largest deal in this segment was TPG's buyout of the American company Sayari for $235 million, the third was the buyout by Keensight Capital of the Irish company SoftCo for $109 million.
   
Around the world, venture capitalists and private equity investors are showing a growing interest in regulatory technology and see it as a sector with sustainable growth opportunities, given the growing pressure on financial institutions and other entities that are subject to government regulation and must comply with increasingly complex regulatory requirements. The number of deals and their volumes are expected to increase as macroeconomic conditions improve. The main drivers of growth in this segment are primarily constant changes in regulatory requirements, increasingly complex reporting requirements and an ever-changing business risk environment. Such a confluence of factors creates a great burden on financial groups and individual companies, which increases interest in Regtech solutions that can automate and reduce the burden on companies. Continued regulatory pressure and significant losses incurred by financial companies are expected to be a driver to support high-level investment in these areas for the foreseeable future.

According to expectations, the development of the Regtech segment will be primarily aimed at:

Continued focus of the Regtech segment on risk management systems and compliance functions in companies;
wider use of the benefits provided by artificial intelligence technologies;
increased interest in regulatory technology solutions to address complex multinational requirements and challenges;
increased interest in regulatory technologies from national regulators, such as central banks and ministries.

FINTECH segment — Cybersecurity
Global cybersecurity investment in the first half of 2024 was lower than in previous periods and amounted to only $640 million, less than half of the $1.4 billion invested in 2023. At the same time, the total number of transactions was 40, which is quite a good indicator and corresponds to the second best indicator in terms of the volume of transactions in the field of cybersecurity in history.

The vast majority of cybersecurity deals were concluded in the United States, where the key deal was TPG's $235 million buyout of supply chain risk analysis platform Sayari. Another major deal was the raising of $100 million in venture capital from the FundGuard and EigenLayer platforms.
   
In the cybersecurity segment, artificial intelligence continued to be an incredibly hot area of interest for investors. In addition to the operational application of artificial intelligence, investors are also showing a growing interest in cybersecurity solutions aimed at protecting the activities of artificial intelligence itself. For example, ensuring the security of artificial intelligence algorithms and protecting data integrity remains a key task.

One of the trends in the cybersecurity market segment is the increasing consolidation within larger platforms, it is becoming increasingly difficult for niche players in the cybersecurity space to attract attention and get the funding they need to scale and grow. According to experts, this could contribute to further market consolidation, as smaller players experiencing difficulties will seek to sell their assets.

It should also be noted that the Digital Operation and Resilience Act (DORA) will come into force in the European Union on January 1, 2025, which is aimed specifically at improving the operational and IT security of banks and financial institutions. A recent analysis by KPMG found that in the European Union's financial sector, only one-third (32 percent) of regulated entities comply with all the requirements of the new law. This forces financial companies to look for solutions that can help them comply with cybersecurity requirements in accordance with the changed regulations.

Key trends in the cybersecurity segment in the near future:

An intense focus on all aspects of artificial intelligence for the purpose of timely risk identification and response;
focus on platform-based cybersecurity models;
continuation of the vector towards market consolidation on the part of large players;
increased attention to code security;
Continuous development of cybersecurity regulations that stimulate interest and investment in relevant solutions.

FINTECH segment – Asset Management Technologies
Speaking about the main trends in the fintech segment of asset management technology (Wealthtech), it is worth noting that this term is understood as digital solutions that help clients manage their investments in an efficient and affordable way. Today, any technology that helps the wealth management industry can be considered Wealthtech. The most famous example of such solutions is robo-advisors. Wealthtech also includes any solution to improve the efficiency of client portfolio management, improve the quality of customer service, increase asset liquidity and reduce transaction costs.

The total investment in asset management technologies in the first half of 2024 was very low.
   
In the US venture capital market, it is worth highlighting only one deal to raise $63.8 million by the investment management company Edward Jones. Otherwise, investors in the field of asset management technologies refrained from concluding large transactions in the first half of 2024 or focused on internal innovation activities.

In asset management technology, AI is now in the spotlight of virtually all players in the asset management sector, as both investors and companies themselves seek to understand how AI can play a role in effective asset management, especially in terms of empowering management and forming competitive products. While the main application of artificial intelligence is currently focused on expanding back-office activities, there is a growing interest in using artificial intelligence for in-depth data analysis, improving robot advisory services, and automating investment processes.

Around the world, investors are increasingly focusing on standalone asset management platforms and tools that allow individual investors, both digitally savvy and those with little money to invest, to become more active in asset management. This trend has been particularly pronounced in the Asian region, where self-managed investment platforms are seen as a means of facilitating access to asset management activities.

It is worth noting a rather interesting collaboration between asset management technologies and technologies in the field of healthcare, partly initiated by insurance companies seeking to gamify a number of insurance products. For example, a number of health tracking apps have integrated mechanisms to provide savings, discounts, and other rewards to their users.

Another interesting trend that has formed in the asset management technology market is the interest of large private investors in the implementation of the ESG agenda in the field of asset management. For example, a number of large European companies offer their clients the opportunity to invest in environmentally sustainable technologies or socially responsible companies, as well as to make charitable contributions.

Speaking about the prospects for the development of the asset management segment, it is worth noting the following trends:

large companies specializing in asset management show fairly rapid growth and become more like banks;
AI use cases are increasingly focused on direct interaction with clients, including the provision of investment advice;
Asset management technologies are playing an increasingly significant role in changing the face of socially responsible investing.
FINTECH segment — cryptocurrency and blockchain
After a significant decline in 2023, global investments in cryptocurrency and blockchain stabilized in the first half of 2024, amounting to $3.2 billion in investments worldwide. Even large deals remained insignificant compared to historical trends, with only five deals worth more than $100 million, all in venture capital. Thus, the British Revolut raised $139 million, and the Hong Kong-based Hashkey Group, the American company Berachain, the British company MAR Mining and the American company EigenLayer raised no more than $100 million each.

Although the transaction sizes in the cryptocurrency and blockchain space were relatively small, the volume of transactions remained significant, with 677 transactions concluded in the first half of 2024, exceeding the number of transactions observed in the corresponding period last year.
   
While the U.S. focused primarily on crypto regulation in the first half of 2024, the EMEA and ASPAC regions focused more on the development and launch of digital currencies and the tokenization of digital assets in the real world. In the first half of 2024, the Hong Kong Monetary Authority launched the next phase of the e-Hong Kong dollar pilot, and the European Central Bank (ECB) has published a report on its progress towards the digital euro as part of the preparation phase, which will last until October 2025. The ECB spoke about the work being done to develop privacy standards to make digital online and offline payments as close as possible to cash transactions, and in addressing other controversial topics such as retention limits and compensation for payment services providers.

The main areas of development of the cryptocurrency and blockchain segment include:

the growth of tokenization of real assets;
growth in investments in blockchain-based solutions;
an increase in the value of cryptocurrency due to an increase in the infrastructure associated with its circulation.