Interest in the payments sector grew considerably last year, with global investments rising to $31 billion (£24.5bn), with the second half of the year seeing an increase in M&A activity and dealmaking, according to fresh research from KPMG.

The firm’s latest Pulse of Fintech report found that despite the uptick in both funding and deals within the payments space, 2024 still fell short of the highs seen in 2022, when investments reached $59.2 billion (£46.9bn) across 1,042 deals, close to double the 531 recorded last year.

According to KPMG, a number of the largest deals in the payments sector reflected defensive moves on the part of investors, including GTCR’s $12.5 billion (£9.9bn) buyout of a majority stake in US-based payments processing firm Worldpay during H1 2024, and the $6.3 billion (£4.9bn) take-private of Nuvei by Advent International in the latter half of the year.

However, the report also notes that investors were enticed by the growth of AI-enabled solutions, with many payment sector firms looking to capitalize on the emerging tech for security and fraud detection, the automation of complex payments workflows, and to improve customer experience.

KPMG’s study predicts that this year, the payments sector will see a rapid rise in the use of AI, along with an increasing focus on account-to-account payment solutions, and more exploration of instant payments to satisfy a growing demand for fast money movement, which could trigger further industry consolidation.

Less Regtech Investment Despite More Reg

As well as looking for more AI solutions, fintech firms also spent last year hunting for tech that could help streamline their compliance efforts, especially large tech companies which continued to focus on incorporating regtech solutions within their broader platform plays. 

While investments tapered off following the $4 billion (£3.1bn) buyout of UK-based IRIS Software Group by Leonard Green, regtech still attracted more funding last year than in 2023, levelling off at $7.4 billion (£5.8bn) across 313 deals. 

Given the increasing complexities of the regulatory environment across the financial services sector, especially for UK and EU firms, there continued to be a lot of investor interest in regtech over the second half 2024, particularly in software-as-a-service companies.

However, KPMG points out that completed deals remained far and few in between as investors held off due to ongoing uncertainties, and instead adopted a ‘wait and see’ attitude. 

“The global macroeconomic picture did not help regtech dealmaking this past year, but the regulatory environment is a complex beast, constantly evolving and throwing new challenges our way,” said Chris Steele, a partner in banking and risk regulation at KPMG UK.

“That’s why there’s still a huge appetite for regtech solutions, especially those that leverage software-asa-service and AI. These technologies are key to streamlining compliance processes and making sure businesses can keep up with the everchanging regulatory landscape.”

All Quiet on the Cyber Front

Surprisingly, one area that was particularly quiet last year was cybersecurity, which saw even less investment across 2024 than the previous year, despite numerous industry reports that AI and other emerging technologies make this an extremely dangerous moment.

KPMG found that direct investment in the cybersecurity space was very soft last year, accounting for just $890 million (£705m) compared to $1.4 billion (£1.1bn) in 2023, and slowed further as the year went on.

Deal sizes were fairly small during H2 2024, with the largest a $90 million (£71.3m) raise by South Africa-based Cassava Technologies, with KPMG claiming that the absence of major acquisitions that have previously been a signature of the sector driving this trend.

Even so, AI remained a top area of interest for cybersecurity investors, particularly around fraud detection and response, with this area poised to evolve rapidly over the coming year as more niche players come out with tailored solutions built on new tech.

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KPMG also forecast that 2025 will see a growing focus on data fabric solutions that can provide a means of evaluating data across cloud environments, as well as the continued dominance of platforms over bespoke security tooling, and possibly more investment activity as geopolitical tensions rise.

“Heading into 2025, we will likely start seeing more strategic investments in cyber, regardless of what is going on geopolitically because local economies are really starting to open back up again,” said Charles Jacco, global lead of cyber financial services.

“In the US, there’s the expectation that there will be a focus on deregulation; should this happen, we could see some of the money that corporates have spent on regulatory remediation going into more strategic cyber investments.”