To find out what’s really going on in a sector, follow the money. This is particularly true of mergers and acquisitions (M&As), the revving engine of any competitive market.

So what’s happening under the hood in FinTech?

Corporate finance advisors Hampleton Partners have produced a new report looking at FinTech M&A activity in the second half of 2018, and are using their findings to predict how well the market will turn over this year.

While the technology has appeared to revolutionise processes and business models worldwide, significant regional disparities do exist, the report explains. The good news is that the UK leads the way in Europe, “breeding a new generation of innovators with record levels of investment in 2018”.

There’s no mention of Brexit in that assessment. Some readers may be grateful for that, but it’s important to face facts. With Barclays, Deutsche Bank, JPMorgan, Pantheon, Swissquote, Transferwise, and UBS all shifting money and operations out of the UK, and AXA, Bank of America, Citigroup, Credit Suisse, Goldman Sachs, HSBC, Morgan Stanley, Nomura, Society Generale, and Standard Chartered among those moving jobs to Europe, a question mark must be hanging over the City’s future as a global financial hub.

Uncertainty is no friend to investors – unless they’re betting on it in a late blooming of disaster capitalism. Either way, it must be acknowledged that FinTech and RegTech are heat-seeking markets, and Europe’s hotspot seems to be shifting away from London. Follow the money, indeed.

And then there’s the question of scale, suggests the report. Despite UK startups capturing a growing share of the market, even the largest British FinTech firms and fledgling banks are dwarfed by US operations such as Stripe, Robinhood, and SoFi. These, in turn, are “outclassed” by China’s Ant Financial, recently valued at $150 billion, it says.

But what of the technology itself? Retail banking has led the charge in incorporating FinTech into digital products, the report continues. Meanwhile, investment banks have focused more on what the authors call “robo-advisory services”.

Certainly, the financial sector is in the vanguard of adopting artificial intelligence (AI) and machine learning (ML) platforms, using the technology to spot patterns in data and, in some cases, second-guess or even influence what customers do with their money.

Unsurprisingly, big tech venture arms have been going the “robo-advisory” route, too. For example, Google parent Alphabet’s venture capital arm has been among those attempting to replace humans with AI for investment decisions, as a number of banks have in recent years.

“The machine learning algorithm permits or prohibits new and follow-on investments, based on data fed into it by staff members using a traffic light system of indicators to communicate its decision,” explains the report.

However, while AI shows considerable promise, the reality is that change is more likely to be gradual, rather than a “quantum leap into new data sources and methods”.

Not mentioned by the report are the risks of poor training data, of bias entering the system, and a lack of transparency and ‘auditability’ in black-box solutions. That said, it’s possible that AI may break conservative investment cycles.

Going forward, Hampleton Partners suggest that the biggest FinTech firms will go for IPO this year – putting the sector on a par with ride-hailing and autonomous transport.

Meanwhile, the majority of startups that have “grown large enough to gain traction, attract a strong customer base, and produce a profitable balance sheet” will stay small enough to be snapped up, says the report.

Which suggests the market is no longer at the Big Bang stage. According to Hampleton Partners’ data, FinTech M&A activity actually decelerated in the second half of 2018. Transactions fell from their 1H high of 189 to 160, and 1H disclosed transaction value of almost $50 billion fell to just $13 billion.

That said, this was largely down to the absence of blockbuster deals, such as Blackrock’s $17 billion acquisition of Thomson Reuters in 1H2018.

Overall, the primary focus of the market remained application software, as challenger banks continued to pursue aggressive growth, while incumbents upgraded their legacy infrastructures.

Four out of the five largest acquisitions (in the $billion-plus bracket) were for software and services that serve the largest financial institutions. For instance, Eze Software Group, a financial trade execution cloud service provider, was acquired by SS&C Technologies for $1.45 billion.

Meanwhile, ITG, a stock trading software and services company, was acquired by commodities trading exchange Virtu Financial, for $1 billion (at 1.5x revenue).

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