29/08/23

FINTECH: UK sees fintech investment decline 57% in one year

As published on: consultancy.uk, Tuesday 29 August, 2023.

Investments in the UK’s fintech sector have plummeted by 57% between 2022 and 2023. According to a new study, however, regulating the crypto currency and digital assets sectors in the country could be about to turn the tide.

At the height of the clamour for digital disruption, the threat and opportunities created by disruptive fintech firms was said to be of major importance for the financial sector. As financial institutions looked to tackle complex problems such as shifting consumer expectations, regulatory burdens and heightened competition from digital upstarts, many were said to be turning to innovative fintech platforms for their salvation – something reflected by European investment in the sector at the start of 2019 almost doubling on the levels seen over the first six months of 2018.

Since the pandemic, however, the fintech sector has been warned of an ‘existential crisis’, as investors grow tired of waiting for their promised returns amid a range of economic headwinds. Contrary to the pre-2020 view that fintech investment was set to experience an endless boom, interest has notably waned in the financial technology firms, especially in the banking sector.

While rising optimism in 2021 led to a brief reprieve for the sector, the latest research from KPMG suggests that fintech are once again seeing a drastic decline in investment. The total global funding and the number of deals for fintech has dropped, from £49.6 billion across 2,885 deals in the second half of 2022, to £41.1 billion across 2,153 deals in the first six months of 2023.

The UK has been no exception to this dramatic decline, either – having endured an even more pronounced reduction in volume and value. In the first half of 2021, UK fintech saw 380 venture capital, private equity and merger and acquisitions deals – worth £21.9 billion. In the same period of 2022, however, that had tumbled to £10.9 billion, across 392 deals.

The drop in the average value of those deals shows a decline in investor-interest, who perceived turning a profit on fintech investments to be an increasingly remote prospect. As such, volume and value have fallen further for the first half of 2023, hitting £4.6 billion over 215 deals.

The total investment in UK fintech has fallen by 57%, comparing the first halves of 2022 and 2023. KPMG suggests that factors behind this include high inflation, rising interest rates, geopolitical tensions (the ongoing conflict between Russia and the Ukraine), and tech sector challenges (depressed valuations and a continued lack of exits) have all dampened investor demand. Meanwhile, the collapse of several US banks early in 2023 likely also kept many investors in wait and see mode.

But looking ahead, the researchers suggest that trends in digital assets could be about to change the tide for UK fintech. They noted that the emergence of UK crypto regulations could help position the country as a global crypto centre.

John Hallsworth, a partner in KPMG UK’s financial services, open finance and fintech wing, added, “The UK is working hard to become a leading global centre for crypto and digital assets, building on its natural advantages - the legal and regulatory environment, the availability of skills, the quality of the Universities and the language and time zone positioning. While the UK may not be first out of the blocks with its crypto and digital assets regulations, they’ll likely come into force in early 2024, it is working to create the right regulatory environment to support a sustainable crypto and digital assets ecosystem and make it an attractive location to participants, while also protecting consumers.”

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FinTech Investment UK