Additionally, in 2024, several fintechs ran out of capital and were forced to sell or close their doors.
According to KPMG Australian fintech landscape 2024the market should remain “cautious” in the short term.
However, if the Reserve Bank of Australia begins to ease monetary policy next year, this cycle could end, potentially attracting more investment into the sector.
Although mergers and acquisitions (M&A) and investment activity in the fintech sector – and the financial services sector in general – have remained subdued this year, deal flow has been primarily driven by buyers and strategic investors, noted KPMG.
These transactions focused on a smaller number of larger transactions, often involving foreign strategic investors. In contrast, financial sponsor activity – led by private equity or venture capital – was less prevalent, the company added.
“Overall, current investor market sentiment still leans towards caution and safer investments, with venture capital firms remaining cautious when it comes to investing, not only in fintech, but in the entire FS landscape in general,” the company said.
Additionally, consolidation has reduced the number of independent fintech companies operating in Australia from 800 in 2022 to 767 in 2024.
KPMG data indicates that most of the decline (around 4.5%) was a result of fintechs ceasing operations, while around 3% was due to M&A activity.
Additionally, challenging local macroeconomic and financing conditions in 2024 have led to a continued slowdown in new financial technology launches, the company noted.
According to its outlook, delayed rate cuts, initially expected for 2024, have added further pressure to an already complex capital raising environment.
“As we continue to see financial institutions cooperating with fintech companies, the focus has shifted from themes such as customer acquisition and growth to cost management, compliance and profitability,” KPMG said.
Key Financial Technology Sectors
KPMG has identified payments, regtech and blockchain/cryptocurrency as key areas of focus for the Australian fintech sector.
The payments sector remains by far the most mature segment, accounting for around 20 per cent of the total fintech market with more than 150 companies in Australia.
In 2024, the sector has attracted foreign investment, as evidenced by the acquisition of an end-to-end driver and passenger solutions provider, a2b Australia, by Singapore-based multimodal transport operator ComfortDelGro.
KPMG, however, expects new regulations to be introduced to provide a clear framework and “level playing field” for this sector, given its maturity.
Increased compliance requirements have also boosted investment in the regtech sector, making it the only fintech sub-sector globally to have seen an increase in investment in the first six months of 2024.
According to KPMG data, regtech is now the third largest fintech segment in Australia, with almost 80 active participants.
“Throughout the year, we have seen a continued focus on the deployment of regtech solutions, as risk and compliance functions seek to deliver greater organizational value while reducing the cost of compliance and, at the same time time, reducing the risk of non-compliance. ”, says the report.
In the future, evolving regulatory frameworks and increasing reporting complexity, particularly for international businesses, are expected to attract “increased interest and investment” in this area, KPMG added.
The report also highlights the fact that many regtech companies are also leveraging AI to cost-effectively manage upcoming regulations.
On the other hand, blockchain and cryptocurrency was the hardest hit sub-sector and saw a 14% year-over-year decline to 74 active companies in 2024, according to the report .
“Despite this, the Australian blockchain and crypto sector has some leading players, with a diverse portfolio of products and services such as Independent Reserve, Swyfts and CoinSpot,” KPMG said.
The company noted that more attention has focused on artificial intelligence (AI) this year and investors continue to accelerate the deployment of capital in the AI space, attempting to convert their companies into businesses. “future-focused and AI-capable.”
KPMG highlighted that in 2024, the focus has shifted to AI, but the US Securities and Exchange Commission’s approval of a Bitcoin ETF could act as a positive catalyst for the security sector. blockchain. Combined with expected rate cuts globally, this event could unlock capital to reinvest in the sector.
In terms of the number of fintech companies, payments remains the largest segment (154 companies), followed by lending (132) and wealthtech (77).
Blockchain, cryptography, and middle and back office come in third place, with 73 companies each.
