Last year saw the global fintech market hit a seven-year low, marked by falling investment and fewer deals across the board, but the second half of this year could see the start of a recovery, according to a new report from professional services outfit KPMG.

The firm’s latest Pulse of Fintech report found that over 2024, fintech investment reached $95.6 billion worldwide (£75.7bn) across 4,639 deals, lows not seen since 2017, with M&A activity and VC funding both falling sharply as the market weathered macroeconomic challenges, geopolitical conflicts and rising tensions.

In the UK, fintech investment dropped by more than a quarter to hit $9.9 billion (£7.8bn) last year, which KPMG said still accounted for nearly half of the EMEA region’s total fintech investment, however the report noted that UK-based funding was particularly soft in H2 2024, with in-country funding accounting for only $2.3 billion (£1.8bn).

KPMG’s report claims that at least part of the reason for this decline is rapidly evolving regulatory regimes in both the EU and the UK, which made it challenging for startups and scaling fintechs to focus on growth activities, having to put more energy into their compliance measures.

Looking forward, KPMG said that H1 2025 could see more investment in regtech across the UK and EMEA as firms continue to grapple with ongoing compliance challenges, alongside growing interest in the development of AI agents that are able to act independently in areas like fraud detection or anti-money laundering, freeing up human capital to focus elsewhere.

“2024 has been a tough year for investment in fintech businesses, which has inevitably led to the failure or sale of some as the market re-sets,” said Hannah Dobson, partner at KPMG UK.

“The impact of regulation and ‘red tape’ continues to challenge the fintech market across EMEA as businesses face into the new MiCA and AI regimes of the EU and expected regulation in the BNPL and crypto space in the UK.”

Despite retaining the largest share of fintech investment, the US market also suffered last year. According to KPMG, investment in American firms fell from $72.8 billion (£57.7bn) to $50.7 billion (£40.2bn) year-over-year, however dealmaking remains strong – of the top ten fintech deals in H2 2024, half came from the US.

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Only slightly further north, investment in Canada bucked the downward trend, rising to a record $9.4 billion (£7.4bn), driven by three major buyouts and several VC deals, each reaching over $100 million (£79.3m).

As with the EU, regulation uncertainty is rife in the Americas, especially following the inauguration of President Trump, with US firms still unsure of whether new rules introduced in the latter half of 2024 will stick.

On the other hand, KPMG’s report highlights that the incoming administration could drive certain sectors of the US market into record-breaking territory, especially in the crypto and stablecoin industries as more firms look at how to productise them.