The fintech industry has had a hard couple of years. Macroeconomic trends burst its bubble after the heights of 2021, and the collapse of Silicon Valley Bank unleashed a wave of regulatory scrutiny on the financial services industry that made it difficult for those still alive to operate. Now, however, the tide may be changing as we head into a new year.
Here are a few indications:
- Fintech funding ticked up in Q4 — and 2024 overall showed improvement. Specifically, according to data from CB Insights, global quarterly fintech funding reached $8.5 billion in the final quarter of 2024, up 12%, from Q3. However, what is likely more telling is the slow in decline for the year — per the report, funding fell 20% in 2024, compared with declines of 48% and 44% in 2023 and 2022, respectively. This suggests progress and could point to a turn in 2025. Funding is a key market indicator, and while we may never again reach 2021 enthusiasm, we also may not be that far off from a return to a stable flow of capital to the industry.
- A change in administration, embracing innovation. This one is as much about perception as it is about actual policy, but the Trump Administration is giving every indication that it will be taking a pro-innovation approach that favors a lighter touch on the regulatory front. And that’s driving chatter about its potential impact on the fintech industry and ability to help turn things around. As officials take their posts, we will get more clarity about what this may look like. For instance, Travis Hill, acting chairman of the Federal Deposit Insurance Corporation, offered a list of priorities in a statement on January 21 that included plans to “adopt a more open-minded approach to innovation and technology adoption, including (1) a more transparent approach to fintech partnerships and to digital assets and tokenization, and (2) engagement to address growing technology costs for community banks.”
- The initial public offering market is heating up — as efficiency efforts succeed. Another major indicator that we’re headed out of the doldrums is that some of the largest fintech firms, including neobank Chime and Swedish buy now, pay later unicorn Klarna, are finally signaling plans to go public. Moreover, this likely points to progress on profitability (which has been a real challenge for the fintech industry) as financial scrutiny is a key element of the public markets. As Tyler Griffin, cofounder and managing partner of Restive Partners, told American Banker, “I’d bet that the chief financial officer of every late-stage, privately funded company is at least exploring what an IPO in the near term looks like.”
The truth is no one has a crystal ball, and we don’t know exactly what will happen. But it does seem fair to be cautiously optimistic at this point. Allowing for that indulgence, the question then becomes, “What could a potential resurgence look like?” To answer that question, we’ve got to look at lessons learned — some of the biggest ones from the last few years include: 1) Growth over profitability is (usually) not a good strategy; 2) Fintech companies need to take compliance seriously, whether their businesses are directly regulated or not; and 3) Consumer fintech is a fickle, fickle beast. As a result, it is very likely that what we will see now is an emphasis on value propositions with a clear monetization path, led by experienced executive teams focused on compliance, with more fintech companies positioning themselves as bank tech vendors. We’re already starting to see the buds of this with fintechs like HMBradley shutting down consumer operations and instead focusing on selling technology to banks.
The “We’re making banking better” mantra of the late 2010s feels almost childish today. But that isn’t necessarily a bad thing, nor should it feel embarrassing. Recent years were characterized by evolution for the fintech industry, and what appears to be emerging on the other side is a more resilient and stronger set of companies. Those companies suffered through the difficult times (or are newly built with them in mind), understand the importance of operational efficiency, and are learning to do more with less.
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