After investment declined in 2023, KPMG LLP in Canada says fintech companies face a pivotal year in 2024. They don’t anticipate an easy ride for many – the next six to eight months, they say will continue to be slow for fintech investment – but activity should begin to pick up once the Bank of Canada begins making interest rate cuts.
Investment in Canadian fintechs slowed last year, as the number of deals dropped by more than half and values fell nearly 30 per cent, according to the KPMG global Pulse of Fintech report. “The Canadian results mirror declining investment globally, which saw deals fall 65 per cent and values plummet 73 per cent,” they write. Investment in Canadian fintechs dropped to $920-million (all figures in U.S. dollars) across 109 total deals in 2023, down from $1.29-billion invested across 208 deals in 2022.
A pivotal year
What makes the year pivotal for many, is the fact that larger incumbent companies are expected to accelerate innovation going forward while others face financing shortfalls as they come close to drawing down capital raised up to two years ago.
“Fintech investor sentiment can be characterized as restrained,” they add. Going forward the firm expects increased scrutiny of potential deals and growing interest in business-to-business (B2B) fintech solutions aimed at enablement over business-to-consumer (B2C) business models. Partnerships and alliances are expected to take on greater importance and, in addition to growing interest in the applicability of artificial intelligence across the sector, the firm also expects to see a continued focus on embedded financial products.
Mergers and acquisitions
“AI will likely continue to be a key focus, in addition to B2B solutions. Mergers and acquisitions activity is also expected to rise as investors look for opportunities to buy distressed assets,” they state.
In looking specifically at insurtech companies, they say these companies have retrenched somewhat, to focus on enablement, rather than direct competition.
“Given the challenges that some insurtechs looking to entirely disrupt the insurance industry have had building their brand and market share, there has been a noticeable shift in the focus of insurtechs towards addressing specific pain points within the insurance value chain,” they write, “rather than trying to directly compete with incumbent insurers. This enablement approach is only expected to gain ground over time.”
