So far in 2024, funding raised by fintech and payments companies has shown remarkable fluctuations, with some months hitting significant peaks. Despite the ups and downs, the overall funding landscape remains strong compared to 2023. Notably, there has been an intriguing shift in the geographical distribution of these investments, with emerging markets experiencing a surge in funding activity

Overview of Funding in Fintech and Payments

So far in 2024, funding raised by fintech and payments companies has significantly fluctuated on a monthly basis. Whilst February saw the lowest amount raised ($0.9b) in the past 12 months, May saw a significant peak of $4.4b. However, on the whole, funding so far in 2024 has been healthy. This contrasts with the figures reported in 2023. The first two quarters of 2023 saw $9.9 billion raised through funding rounds in the fintech and payments industry. This year, that same figure totals $12.5 billion – representing a 26% increase YoY.

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As a result of a recent influx of successful funding rounds, Q2 of this year was an especially fruitful quarter for a plethora of young payment and fintech businesses. This rings most true for those in developed countries across Europe, Asia and North America. Recently, however, there has been an abrupt shift in where successful funding rounds are occurring. In July, we saw a notable increase in investments made into payment and fintech companies in emerging markets.

July – the best month for payments and fintech in emerging markets so far?

In July, we witnessed $668m worth of funding in the hands of payments and fintech businesses residing in emerging countries. For reference, this is more than the entirety of Q2 combined and ten times larger July 2023. In total, this funding accounted for 48% of global fintech and payment funding – in other words it was very nearly equal to funding made within developed markets. A year prior, in July 2023, this was just 3%. In short, this recent level of emerging market funding is the best we have witnessed in some time for the payment and fintech industry.

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It is early days in terms of saying whether this level of emerging market funding will be maintained. However, it is still a useful exercise for us to examine some of the deals that occurred during this time as well as thinking about some of the wider forces at play that may explain this uplift in funding.

Why the Increased Interest from Venture Capital and Private Equity?

The surge in private equity (PE) and venture capital (VC) funding into fintech and payment companies in emerging markets can be attributed to a convergence of favourable factors. The COVID-19 pandemic significantly accelerated digital transformation globally, including in emerging markets, as consumers and businesses turned to digital solutions for transactions. This shift created fertile ground for fintech companies to grow rapidly. As economies recover from the pandemic, there is a renewed focus on digital financial services to drive growth, with governments and international organizations implementing stimulus packages that support digital financial inclusion.

Emerging markets also present significant opportunities due to their large unbanked populations and the financing gap faced by small and medium-sized enterprises (SMEs). These opportunities have been met by a surge in funding finding its way into the hands of new fintech companies from emerging markets that are developing SME and personal loan solutions. These come in many forms, from digital lending platforms to lending at the Point-of-Sale (POS) and BNPL.

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The funding amounts raised by fintechs that are helping grow the digital finance industry in emerging markets have risen dramatically throughout 2024. In January, the combined figure stood at $20m. In July, this had risen to $474m.

One recent funding round by Ascend Money Group in Thailand proves to be a good example. Their  $195m Series D funding round in July, led by MUFG Bank, showcased the desire to fuel plans for growing their financial offerings. The company noted that the funding will help them to grow “inclusive financial services for underserved consumers and SMEs (small and medium-sized enterprises), fostering equitable economic growth and financial well-being in Thailand”. One of their leading services is called ‘Ascend Nano’ – offering ‘nano finance and personal loan products to the underserved who need flexibility in order to grow’.

Recent regulatory reforms in several emerging markets have also significantly contributed to the increase in private equity (PE) and venture capital (VC) funding for fintech and payment companies. In India for example, the Reserve Bank of India (RBI) have recently released a detailed framework for a ‘regulatory sandbox’ to foster innovation in the fintech sector. Additionally, this year they released a new set of ‘Digital Lending Guidelines’ to regulate digital loan aggregator platforms ensuring transparency, consumer protection and responsible lending practices. These guidelines, as well as the sandbox environment, build investor confidence by providing a clear regulatory framework. It seems this has had an immediate impact - Auxilo, a student loan fintech from Mumbai, raised a sizeable $33m in their series E funding round that concluded in July. Similarly, Fibe, one of India’s leading fintechs, raised $90m in June – their speciality also being in digital lending.

India is far from the only emerging market to provide regulatory and centralised support for nascent fintech and payment services. Nigeria, Brazil, Kenya, Mexico, South Africa, Malaysia – the list is extensive. Emerging markets around the world are driving new, more easily investible, payments and fintech ecosystems.

As the number of success stories from emerging markets grow, the growing interest to invest in upcoming fintech and payment firms from those regions is fuelled. Combined with other gradually changing factors, such as rising smartphone penetration and financial inclusion levels, and it is likely that emerging markets will continue to see significant sums of funding raised by homegrown fintech and payments companies.

Closing Thoughts

The notable increase in private equity and venture capital funding for fintech and payment companies in emerging markets can be attributed to a combination of factors that have aligned favourably in 2024. Technological advancements on the back of COVID, increasing penetration rates of smartphones and banking services, regulatory changes that welcome fintech innovation but provide investor confidence – these are just a few factors that can be attributed to the change we are witnessing.  

The substantial funding increase observed in July 2024, particularly in emerging markets, underscores the growing investor interest and the potential for sustained growth in these regions. While it is early to predict if this trend will continue, the current influx of capital is likely to drive further innovation and expansion in the fintech and payments industry, contributing to broader financial inclusion and economic development in emerging markets.

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The  content of this article does not reflect the official opinion of Edgar, Dunn  & Company. The information and views expressed in this publication belong  solely to the author(s).