Fintech investment across Europe, the Middle East and Africa fell from $79 billion across 2,379 deals in 2021 to $44.9 billion across 1,977 deals in 2022, according to KPMG’s biannual analysis of global fintech investment, the ‘Pulse of Fintech’ report.
Further, total UK fintech investment hit $17.4 billion in 2022, down from $39.1 in 2021.
This is an excerpt from The Future of Fintech in the UK 2023: An Innovate Finance Global Summit and UK Fintech Week special edition' report.
The first half of last year was much stronger than the second, accounting for $32.8 billion in investment, including six deals worth over $1 billion, including the $1.8 billion acquisition of interactive investor by abrdn. The latter half of 2022 also saw
$12 billion in investment, with the largest deals all valued under $1 billion, including the $839 million buyout of Nucleus Financial by HPS Investment Partners.
But what does the future hold for fintech investment in the UK in 2023? According to John Hallsworth, client lead partner for banking and fintech, KPMG UK, “geopolitical uncertainty, turbulent public markets, high levels of inflation and increasing interest rates have all contributed to downward pressure on valuations and more subdued levels of investment compared to the record highs experienced in 2021.
Hallsworth reiterated that despite this fall in investment, the UK will remain at the centre of European fintech innovation, having year-on-year attracted more funding than firms in France, Germany, China, Brazil, and Canada combined. “The UK’s reputation as a historic financial services sector and ongoing work to nurture fintechs, from testing through to listing, makes it a powerful magnet for investment. The Government’s prioritisation of key sectors, including digital technologies, could also be significant for the growth and expansion of UK fintech,” Hallsworth added.
Richard Prime, co-CEO, Sonovate, highlighted that while some investors may be more wary in 2023 because of the economic uncertainty, the fintech industry will be sure to thrive because of the high profile acquisitions that occurred in 2022.
This trend will continue, according to Prime. “In order to secure this investment, what’s crucial is that fintech leaders clearly set out – to investors and to their employees – how they are defining their success so that everyone is working towards, and tracking against, the same goals.”
Bhav Nayi, founder, Archie had a similar view and said that although 2023 may be off to a slow start, “VCs still have substantial unused capital and investors cannot afford to remain inactive indefinitely. Everyone we talk to is taking a wait-and-see approach about the economic and growth prospects for the next year. Nevertheless, excellent fintech businesses will still be likely to secure funding, as capital is certainly available.”
Merve Ferrero, chief strategy officer, Zopa bank, summarised all the points by stating that despite “market jitters and global headwinds, we expect fintech investment to continue for companies that can achieve profitable and resilient growth, proving the importance of a sound business model.”
Ferrero used the example of the cost-of-living crisis and how Zopa has prioritised removing barriers and support consumers with tools and through wider industry initiatives. It is important to point out that “rising inflation and the subsequent price surges in everything from energy bills to petrol and grocery costs have exacerbated the squeeze on household finances,” Ferrero said.
The Office for National Statistics has revealed half of UK adults are struggling to pay their energy bills, rent, or mortgage and the number of adults who have borrowed due to the increased cost of living has risen by 17%.
Ferrero continued: “The fintech industry has been built on the principle of driving positive change for customers and in this turbulent time, fintechs can continue to grow by partnering on meaningful large-scale campaigns that respond to the crisis.
“We expect to see more industry collaboration of this nature well into next year, not only to counter the crisis but also to build consumers’ long-term financial resilience in ways that last well beyond this period of uncertainty.”