FinTech Investment Is Rebounding– Are You Ready?

Private Equity & Venture Capital

Acquiring investment is vital for the survival and growth of any business, and FinTech is no different. Unfortunately, the last few years have been fairly difficult for FinTechs seeking investment. Following the economic slowdown caused by the Covid-19 pandemic and geopolitical concerns, investments into the sector plummeted. Even once the lockdown period of the pandemic was over for most countries, investments didn’t see an increase. In fact, they continued to drop with a report from Innovate Finance showing a steep 48% decrease in 2023 when compared to 2022.

In 2024, though, it’s looking like it won’t be all doom and gloom for FinTechs looking for investment funding. Despite limited investment for FinTech startups, established businesses are showing increases in revenue, regardless of whether they received funding or not (in most cases not). This shows potential investors that the FinTech industry is profitable, and we’re reaching a state where the economic situation is healthy enough for FinTech to become a prime target once again.

With all that said, if you’re in FinTech and reading this article and you think the road to funding will be anything like it was pre-pandemic: think again! In the same way that the FinTech landscape has evolved over the last 5 years, so has the investment landscape. Just continuing to follow the trends that worked back then will only lead to failure in the current environment, so any FinTech looking for investment needs to consider several new priorities. The FinTech industry is a competitive one, and those that fail to adapt will inevitably fall behind.

FinTech is Rebounding (Slowly)

It has been a long-held belief of mine that any day now the FinTech industry is going to see a massive resurgence in value. Recent forecasts suggest that FinTech will reach a market size of $1.5 trillion in revenue by 2030 – growth that is roughly 5x from what it is now in 2024. While this recovery may be slower than some in the FinTech industry would like, it’s important to state that the question of the sector’s recovery is now a matter of ‘when,’ not ‘if.’ It will go up in value, and that should provide comfort to those in the FinTech business.

But why is the sector seeing a slow, but positively inclined, investment trend? The reason is simple – there is no need to rush. While investors recognize the enduring value of FinTech and its critical role in powering our daily financial infrastructure, this does not mean investors are going to throw money at the sector willy-nilly. Investors are seeking favorable deals and won’t hasten to restore FinTech funding to its peak levels. For now, FinTech companies should do research into updated investor preferences, focus on extending their financial runways, and prioritize sustainable business development until market stability returns.

Returning to ‘Normal,’ but with ‘Changes’

“…the question of the sector’s recovery is now a matter of ‘when’, not ‘if’. It will go up in value and that should provide comfort to those in the FinTech business.”

By 2030, the FinTech industry will be in a better position than it ever has been, with record-high revenue. However, companies should not just assume that this also means a complete return to the norms of its pre-pandemic high. Quite the opposite, in fact. While investment in FinTech is poised to return to pre-downturn levels soon, it will do so by following different trends and innovations, such as embedded finance, which has skyrocketed in value in recent years.

Perhaps more important than such innovations, however, is how the industry has matured through its downturn. Investors are now far less tolerant of the extravagant behaviors that characterized the past era of FinTech history. In the present day, profitability and compliance are the cornerstones of success. Profitability is an obvious one, and so should be ensuring compliance. However, there have been several instances in the past of companies choosing to pay fines for breaking compliance, rather than spend time and money addressing those issues when those resources could go to a more profitable part of the sector, like R&D or marketing. For many investors, this is no longer an acceptable decision. Companies must prioritize these aspects to attract the same level of investor interest as before. The days of overlooking these crucial elements while still securing significant investment are over.

Investors Want to See Beyond the AI Hype

Embedded finance was mentioned above as an example of a positive trend investors are looking at when deciding to fund FinTechs, but it is not the defining trend seen over the past 6 months. That honor goes to the continued growth of artificial intelligence (AI) across the financial services sector. AI has seen massive improvements over the last year, and investors are taking notice. However, do not just assume that using AI is an immediate guarantee for investor appeal. It is more complicated than that.

Despite the undeniable technological breakthroughs AI offers, not all AI projects are created equal. While investors have been drawn to companies leveraging AI, many remain cautious about those adopting it merely to capitalize on the hype. Businesses seeking funding may feel pressured to retrofit AI into their solutions, but savvy investors will quickly spot these superficial schemes. Investors care more about what value AI actually adds to a FinTech solution and what its implementation will bring them down the line. A better focus for those looking for investment, in this case, would be to focus on the core strength of the solution and maintain confidence in its genuine capabilities.

While knowing what trends investors are looking for is important, nothing beats having confidence in the solution you are creating. If you can get this across to investors, then that’s what matters. So go out there, show off your solution, and become a part of the growing list of FinTechs earning investments in the current market!