Muted activity across fintech M&A and equity capital markets persists as investors channel capital toward artificial intelligence, leaving the sector struggling to compete for attention and funding, according to several dealmakers.

The market, they say, is defined by inertia.

“No one is running really structured processes right now,” said one fintech banker.

Another banker described the environment as “pretty depressing,” citing limited deal flow and widespread uncertainty about which assets may come to market.

That slowdown is being compounded by a sharp shift in investor focus toward AI. A third fintech banker said capital is increasingly concentrated in a narrow set of high-profile AI equity opportunities, with SpaceX’s initial public offering along with OpenAI’s and Anthropic’s potential listings absorbing much of the market’s attention.

Many publicly traded fintech companies across subsectors have suffered steep valuation declines, further dampening deal activity and investor appetite.

The divergence is producing a highly bifurcated market.

While overall M&A volumes remain supported by marquee deals, activity in the midmarket has slowed, the sources said.

“Bigger is better” has become a defining theme, one banker said, with investors gravitating toward scale and liquidity while steering away from smaller, less differentiated assets.

Indeed, North American fintech deals year to date are as low as they’ve been since the pandemic with just 124 announced deals, according to Mergermarket data. Larger transactions have kept deal volume steady at USD 25.2bn year to date, compared with USD 22.76bn and USD 22.45bn in the same year-to-date period of the previous two years, respectively.

The imbalance is exacerbated by a disconnect between supply and demand. One banker noted there are “more sellers than buyers,” making exits increasingly difficult and prolonging timelines for private equity-backed assets.

Private equity firms are particularly constrained, noted KPMG managing director Michelle Swiec, as sponsors that deployed capital into fintech at elevated 2020-2021 valuations, are reluctant to sell at lower multiples. Instead, firms are opting to hold assets longer and improve their operating performance to attract better exits, she said.

At the same time, the nature of dealmaking is shifting. Full-scale auctions have largely given way to more targeted, bilateral discussions, reflecting both buyer selectivity and seller caution.

“A lot of the deal flow right now is more bilateral than it is process,” said one banker, adding that the market largely remains too fragile to support broad, competitive processes.

Strategic buyers are emerging as more active participants. With fintech valuations resetting from pandemic-era highs, corporates – including financial institutions – are exploring acquisitions to build capabilities, particularly where assets support longer-term technology strategies, Swiec said. Still, these deals tend to be opportunistic rather than indicative of a broader recovery led by sponsors, she said.

Investor expectations are also tightening. Advisors say the market has moved decisively away from backing high-growth, early-stage stories toward companies that can demonstrate profitability and margin discipline. Growth alone is no longer sufficient, Swiec said, noting that investors now expect evidence of sustainable earnings and operational resilience.

AI is at the center of this recalibration. Companies positioned at the intersection of fintech and AI – such as those offering AI-driven payments capabilities or infrastructure – are attracting disproportionate interest, while firms without a clear AI narrative are finding it harder to secure capital and buyer engagement, Swiec said.

The same dynamics are weighing on primary markets.

Bankers describe the IPO environment for fintech as only tentatively reopening, with volatility continuing to delay listings. One banker said the market could require “another 18 to 24 months” before meaningful fintech IPO activity resumes, highlighting the disconnect between issuer expectations and investor appetite.

Even well-known private companies are approaching the public markets cautiously.

A payments company like Stripe, which has been of the size and maturity to go public, sees reduced scrutiny and greater flexibility on valuation as a private entity, bankers said. Companies are increasingly weighing whether current market conditions can support successful listings.

Bankers report rising interest in carveouts as companies seek to streamline operations and focus on core businesses. In parallel, there has been an increase in demand for sell-side market assessment reports, as sellers look to more rigorously demonstrate growth potential to buyers, KPMG’s Swiec said.

Activity is expected to recover gradually, but dealmakers caution that a meaningful rebound will likely depend on both macroeconomic stabilization and a rebalancing of investor attention. Until then, fintech remains in a holding pattern – competing for capital in a market where AI continues to set the agenda.