While fintech companies face significant headwinds – from high interest rates to increasing regulatory oversight – they are also finding opportunity in 2024, according to the latest Future of Fintech Report from Silicon Valley Bank (SVB), a division of First Citizens Bank. Venture capital (VC) investment remains muted, hovering near a six-year low for the sector, as deal flow has shifted toward the early stage, with more than three seed deals for every one series A. Artificial intelligence (AI) is also emerging as a bright spot for the industry as investors and founders explore its growing role in the sector.
The 2024 Future of Fintech Report provides a detailed analysis of the fintech market, including investment and fundraising trends. It also looks at the growing importance of AI in horizontal applications, including customer service and productivity, as well as vertical applications specific to finance.
“While fintech companies face challenges, we anticipate broader recovery in investment to begin in 2025 as we continue to see opportunities for the industry,” stated Nick Christian, Head of National Fintech and Specialty Finance at Silicon Valley Bank. “For example, US fintech companies are becoming more efficient with nearly 80% of fintech companies improving EBITDA margins year-over-year and nearly 30% now having six to 12 months of runway left, up from 20% last year. At the same time, generative AI is opening possibilities for value creation in fintech – whether it’s legacy companies improving efficiencies by reducing labor costs, or AI-native companies building novel solutions.”
Additional findings from the Future of Fintech 2024 report include:
Fintech Investment Key Data Points
- Fintech-inclined VC fundraising dropped 91% since its peak in 2021, with funds raising $5B through September. Announced funds, including those that have not yet closed, totaled $9B, the lowest since 2020.
- One in twelve VC dollars went to a fintech company in 2024, down from one in five dollars in 2021.
- VC firms have slowed their pace of deployments in fintech. In 2021, the most active 100 US fintech investors were closing more than two deals per month. That pace has dropped to less than one deal per month this year.
- In 2021, fintech deals over $100M accounted for 65% of deal activity in the sector. In 2024 this number has dropped to 34%.
AI Investment by the Numbers
- Since 2021, mentions of AI in fintech corporate earnings calls have increased 4x.
- AI-native fintech companies are experiencing an advantage in incorporating AI tools into early stage products while legacy fintechs are largely cutting human capital costs in order to embrace AI.
- Native AI companies in fintech create more value per dollar invested than Legacy/first-generation fintechs (i.e., median for 2024 VC deals was 4.0x for Native AI versus 2.7x for Legacy/First Generation AI).
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