Although not nearly as active as other fintech segments, cybersecurity had a record year with well over $600 million invested across multiple transaction types, plus a peak of 53 transactions. Pure-play solutions are not common enough that the field attracts plenty of dealmakers, but given the niche’s clear and growing importance as threats grow more sophisticated, it is likely to keep attracting consistent investor and acquisitive interest heading into 2020. Acquirers can also avoid systemic risk by buying and then implementing their own bespoke solutions, rather than being exposed to a widely used tool.
Fintech-focused cybersecurity investment continued to grow in 2019, driven by the increasing importance of cybersecurity to both traditional financial institutions and fintechs. Part of this relates to the move towards open banking, particularly in the UK and Europe. With data flows opening between different institutions, the ability to protect the data in transit or in the cloud is critical, not to mention protect it within institutions that are not regulated in the same way as financial institutions.
Traditionally, financial institutions, particularly the large banks, rolled out niche or customized cybersecurity technologies on their own that don’t integrate with one another. Now, we’re starting to see a big shift in mindset whereby the banks and other institutions are buying product licenses and focusing more on integrating them together. They are leveraging tools that are out in the market related to fraud, security and identity management versus building it all themselves.
Another driver of cybersecurity investment over the past year has been the need for more effective and customer-centric access controls. Financial institutions are beginning to recognize the importance of providing an exceptional client experience. As a result, they are beginning to rethink their cumbersome identity management processes. This drives investment in fintechs offering innovative access management solutions, including biometrics and behavioral analytics. In some jurisdictions, like Europe, the focus on Know Your Customer (KYC) and Customer Due Diligence (CDD) is widening to include advanced data management, analytics, and interpretation in order to drive more efficient regulatory compliance procedures and address cybersecurity issues.