Who hit the fintech reset button?

New research from FinTech Connect , The Alpha State of FinTech Investment 2024 Report, highlights key trends, including the rise of private equity, AI, and RegTech as dominant investment areas. It also notes a growing preference for well-regulated markets like the UK and USA, alongside a push for financial discipline. Despite challenges such as compliance costs and market saturation, the sector remains optimistic about its transformative potential.

For fintech leaders, this is a moment to adapt and seize emerging opportunities. Embedded finance, AI-driven solutions, and partnerships with financial institutions are paving the way for innovation and growth. Fintech’s ability to evolve now will define its role as a cornerstone of the financial future.

The valuation reset: A necessary correction?

The fintech sector’s meteoric rise over the past decade has been tempered by what many are calling the “Great FinTech Valuation Reset.” Once characterised by lofty valuations and rapid growth, the industry is now adjusting to more sustainable expectations. Revenue multiples that previously averaged 15 to 20 have now stabilised around seven—a clear sign of the market’s maturation.

Despite this adjustment, investor confidence in the sector remains strong. According to the report, the average deal size in early 2024 was $10 million, indicating that capital continues to flow, albeit with greater scrutiny. While nearly 50% of investors express concerns about valuations, a majority—67%—maintain optimism about fintech’s long-term potential.

Private equity takes centre stage

The recalibration of valuations has not just shifted investor expectations but also reshaped the funding landscape. With venture capital activity slowing, private equity (PE) is emerging as a key driver of fintech growth, offering a measured approach aligned with today’s demand for operational stability.

According to the report, 48% of fintechs now regard private equity as a key PE funding source.  Series A and B funding rounds dominate, accounting for 70% of investor activity, reflecting PE’s focus on established businesses with clear market traction. This shift signals a growing preference for companies that balance scalability with operational discipline.

For fintech leaders, PE presents a dual challenge: to demonstrate financial resilience while maintaining growth potential. Beyond capital, PE firms offer strategic expertise and networks, enabling businesses to scale sustainably and navigate market complexities. As fintech matures, this partnership is bridging innovation with stability.

AI and RegTech: The investment sweet spots

As fintech evolves to meet changing market demands, certain subsectors are emerging as clear winners. Among them, artificial intelligence (AI) and regulatory technology (RegTech) stand out as investment priorities. According to the report, 71% of investors view AI as a critical driver of fintech growth, highlighting its ability to enhance efficiency, personalise customer experiences, and reduce operational risks.

AI’s applications in fintech are diverse and impactful. From intelligent fraud detection systems to predictive analytics that refine lending decisions, the technology is enabling institutions to operate smarter and faster. In payments, AI is driving automation and reducing friction for consumers, further solidifying its role as a cornerstone of financial innovation.

Meanwhile, RegTech is experiencing a surge in demand as compliance pressures mount. With 64% of respondents citing AML and KYC regulations as their top concerns, fintech companies are turning to RegTech solutions to streamline compliance processes and mitigate risks. This rising interest aligns with the growing complexity of regulatory frameworks such as the EU’s Digital Operations Resilience Act (DORA).

For fintech leaders, investing in these technologies is no longer optional—it’s essential.

The profitability imperative

Economic pressures are reshaping priorities across the fintech landscape. According to the report, 57% of financial institution leaders are prioritising profitability over innovation. This shift mirrors broader market sentiment: investors and stakeholders alike are scrutinising balance sheets more closely.

For fintech leaders, this creates a dual challenge: maintaining innovation while proving financial sustainability. The report emphasizes that demonstrating profitability—or at least a clear pathway to it—is becoming a non-negotiable aspect of fundraising.

ESG and DE&I: Striking the right balance

In addition to focusing on profitability, fintech companies must also contend with the growing importance of Environmental, Social, and Governance (ESG) and Diversity, Equity, and Inclusion (DE&I) initiatives. While economic pressures have led to a decline in funding across many sectors, 52% of fintechs believe that their ESG efforts are being moderately impacted by these constraints, with 25% reporting significant effects. Despite these challenges, the need for ESG integration remains paramount, with many investors still prioritising sustainability alongside profitability.

For fintechs, maintaining a strong commitment to ESG and DE&I is critical—not just for ethical reasons, but also because these efforts are becoming increasingly important to investors and customers alike.

Regional insights: Opportunities and challenges

Geography continues to be a key determinant in fintech investment decisions, with the UK, USA, and Ireland maintaining their status as the top destinations for capital. However, as market dynamics evolve, fintech leaders must remain adaptable to stay competitive. Below is a breakdown of regional trends and opportunities:

Key investment markets

• The UK, USA, and Ireland are still seen as the most attractive markets for fintech investment, driven by their stable regulatory environments.
• 68% of investors favour well-regulated markets, indicating a preference for predictability and security in the face of increasing global uncertainty.

The changing role of the UK

• London’s appeal for IPOs has declined, with just 24% of respondents viewing it as the best location for fintech public listings. This signals a shift in exit strategy preferences among fintech companies.
• The rise of alternative funding routes such as private equity and acquisitions is pushing many fintechs to reconsider traditional exit strategies.

Emerging markets: New opportunities

• Asia and Latin America are becoming increasingly attractive to fintech investors, with digital finance adoption accelerating in these regions.

For fintechs expanding globally, success depends on balancing a localised approach with a global strategy. Understanding the cultural and economic landscape of emerging markets is crucial for tailoring products and building local relationships.

While well-regulated markets like the UK and USA remain attractive, emerging markets offer fresh growth opportunities. Fintech leaders must stay agile, adapting their products to local needs while ensuring compliance with regional regulations.

The road ahead

The fintech sector is at a crossroads. After a period of rapid growth and sky-high valuations, the industry is now entering a phase of reflection and recalibration. The focus is shifting from quick wins and speculative investments to building resilient, profitable, and socially responsible businesses. As fintechs evolve, opportunities in areas like AI, RegTech, and emerging markets remain ripe for the taking—but the journey ahead will require careful navigation.