Moreover, in 2024, several fintechs ran out of capital and were forced into sales or closures.
According to KPMG’s Australian fintech landscape 2024, the market is likely to remain “cautious” in the near term.
However, if the Reserve Bank of Australia commences easing monetary policy next year, this cycle could come to an end, potentially attracting more investment into the sector.
While the mergers and acquisitions (M&A) and investment activity in the fintech sector – and the broader financial services industry – remained subdued this year, deal flow was predominantly driven by strategic buyers and investors, KPMG noted.
These transactions focused on a smaller number of larger deals, often involving foreign strategic investors. In contrast, financial sponsor activity – led by private equity or venture capital – was less prevalent, the firm added.
“Overall, current investor market sentiment is still leaning towards caution and safer investments, with VCs still wary when it comes to investing, not just in fintech, but across the FS landscape more broadly,” the firm said.
Moreover, consolidation reduced the number of independent fintech firms operating in Australia from 800 in 2022 to 767 in 2024.
KPMG’s data indicates that the majority of the decline (approximately 4.5 per cent) resulted from fintechs ceasing operations, while around 3 per cent were impacted by M&A activities.
Additionally, challenging local macroeconomic and funding conditions in 2024 led to a continued slowdown in new fintech launches, the firm noted.
According to its outlook, delayed rate cuts, which initially were expected in 2024, added further pressure to an already complex capital raising environment.
“While we continue to see financial institutions cooperating with fintech firms, the focus has shifted away from themes such as customer acquisition and growth to cost management, compliance and profitability,” KPMG said.
Key fintech sectors
KPMG identified payments, regtech and blockchain/cryptocurrency as the key areas of focus for Australia’s fintech industry.
The payments sector remains by far the most mature segment, representing around 20 per cent of the total fintech market with over 150 businesses in Australia.
In 2024, the sector attracted overseas investment, which was illustrated by the acquisition of an end-to-end solutions provider for drivers and passengers, a2b Australia, by Singapore-based multi-modal transport operator ComfortDelGro.
However, KPMG expects new regulations could be introduced in order to provide a clear framework and “a levelled playing field” to this sector, given its maturity.
The rise in compliance demands has spurred investment also in the regtech sector, making it the only fintech subsector globally to have experienced 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 close to 80 active participants.
“As the year progressed, we have seen a continued focus on the deployment of regtech solutions, as risk and compliance functions seek to deliver greater organisational value while lowering the cost of compliance and, at the same time, reducing the risk of non-compliance,” the report said.
Looking ahead, evolving regulatory frameworks and increasing reporting complexity, especially for international firms, are expected to attract “increased interest and investment” in this space, KPMG added.
The report also pointed to the fact that many regtech firms are also leveraging AI to manage upcoming regulation cost effectively.
On the other hand, blockchain and cryptocurrency was the hardest hit subsector and experienced a 14 per cent year-on-year fall to 74 active firms in 2024, according to the report.
“Despite that, the Australian blockchain and crypto sector features some high-profile players, with a diversified portfolio of products and services such as Independent Reserve, Swyfts and CoinSpot,” KPMG said.
The firm noted that the spotlight shifted this year more to artificial intelligence (AI) and investors continue to gather pace in deploying capital in the AI space, attempting to convert their businesses into “forward-looking and AI-capable” ones.
KPMG highlighted that the focus in 2024 shifted towards AI, but the US Securities and Exchange Commission’s approval of a bitcoin ETF may act as a positive catalyst for the blockchain sector. Combined with anticipated rate cuts globally, this event could unlock capital for reinvestment in the sector.
In terms of fintech firm numbers, payments remains the largest segment (154 firms), followed by lending (132) and wealthtech (77).
Blockchain and crypto and middle and back office came third, with 73 firms each.
