Global fintech funding slumped to its worst half-year in five years in the first six months of 2025.
Investment reached $44bn (£32.47bn), falling from $54.2bn the year prior, whilst the number of deals fell from 2,376 to 2,216.
Weak investment in the three months to June 31 2025, hurt the headline figures, with just $18.7bn invested globally – the lowest in eight quarters.
UK fintech investment fell to $7.2bn (£5.36bn) – a drop of five per cent from the same period in 2024 – according to KPMG’s bi-annual pulse of fintech report.
Tim Johnson, KPMG’s global lead for financial services deals advisory, said: “The first half of 2025 has underscored a recalibration in fintech M&A activity.
“While overall investment volumes have softened, strategic acquisitions demonstrate that high-value deals are still being pursued”
Digital assets the ‘brightest star’
Whilst not a new entry to the fintech scene, digital assets could be set for another boom in the months ahead as governments turn more bullish on the rapidly evolving space.
Global investment reached $8.2bn in the first half of 2025, closing in on the $10.7bn reached in 2024.
The report from KPMG labelled the space the “brightest star” in fintech investment, with it “well positioned” to notch a three-year high at the end of 2025.
Chatter around stablecoins has ramped up over the last 12 months and Chancellor Rachel Reeves has made her intentions clear to secure the UK’s spot as a “world leader” in the space – though she faces a Bank of England-sized battle in achieving her ambition.
The Financial Conduct Authority will publish its final rules on stablecoin regulation in 2026.
Analysts have told City AM they expect a clearer framework to be “transformational” for the UK’s goal to grab a slice of the over £200bn market.
The US passed the ‘GENIUS Act’ in early July, which aims to strengthen the dollar’s position in the digital economy by providing an attractive framework for innovation. The fresh legislation is expected to “set the stage for further activity and investment” in the space.
Fintech investors ‘very hot’ on AI
The entry of AI into the fintech scene was a “very hot area of interest” for investors in the first half of the year, attracting $7.2bn. In 2024, it attracted just $9bn in investment.
Agentic AI – systems composed of software agents that can act autonomously – was most in demand with firms using the tech to handle low-level security tasks and “increasing interest” of AI in the regulatory process.
Usage in anti-money laundering and know-your-customer processes was also popular among firms.
KPMG said the valuation of an early-stage AI-driven fintech company, at nearly $134m, came “well ahead” of a non-AI-driven firm.
Anton Ruddenklau, lead of global fintech and innovation at KPMG, said: “Both investors and institutional users are very keen on the potential of generative Al and agentic Al…
“Fintech-focused Al is only going to get hotter headed into the back half of 2025.”
Regtech ‘gains ground’ with growth missions
In regtech – where firms use tech to enhance regulatory and compliance processes – investment for the half sat at $2.1bn, derailing hopes of smashing 2024’s figure of $8.4bn.
KPMG said the “cost of compliance, particularly in Europe” has maintained demand for the sector as financial institutions look to “reduce manual effort while improving efficiencies”.
The UK government has asked financial watchdogs to “regulate for growth” in a bid to boost the economy.
“Supervisory tech continued to gain ground” as the Treasury pressed forward with this mission, KPMG said, with regulators, beyond just the UK, “increasingly looking at how they could not only encourage the evolution and use of regtech by market participants, but also at how they could themselves use regtech as part of their regulatory mandate”.
Insurtech in ‘paradigm shift’
Global insurtech investment reached $4.8bn in the first six months of the year as the insurance industry turned to innovative tech to streamline operations.
The figure dwarfed the $2.9bn booked in all of 2024.
The sector had a “paradigm shift” with start-ups with broad, asset-intensive business models aiming at becoming fully fledged insurance providers collecting the big investments.
Marshmallow, a UK-based insurance platform, raised $90m in the period – the largest insurtech deal in the Europe, Middle East and Africa region.
AI was a major factor in driving investment with a focus on claims processing, underwriting and fraud detection but the tech sparks competition from the sector.
Ram Menon, KPMG’s global lead of insurance deal advisory, said: “Insurtechs are facing growing competition from internal development teams within insurers who are now directly leveraging Al”.
Payments ‘selective’ rebound
Whilst investment in payments dried up, analysts expect a rebound to change the direction of the sector.
Global investment fell to $4.6bn for the half, worlds away from the $30.8bn annual total in 2024.
Courtney Trimble, KPMG’s global lead of payments, said: “I think the exit environment for payments-focused fintechs is rebound – but it’s selective.”
The decline came as investors backed away from major merger and acquisition deals over $1bn and shifted away from “speculative consumer-focused fintech models” towards infrastructure-focused solutions that “combined innovation with clear value delivery”.
The largest deal came from UK-based payments platform provider Rapyd Financial Network, which raised $500m.
Cross-border payments, which are currently dominated by giants Revolut, Wise and Airwallex, are expected to ramp up as acquirers look to gain access to infrastructure facilitating digital transfer across borders.
