Pulse of Fintech Pulse of Fintech Pulse of Fintech

2021 was an incredibly strong year for the UK fintech industry. The UK remains at the centre of European fintech investment, with British fintechs attracting significantly more funding than their counterparts across EMEA. The investment total was boosted by the record number of UK fintech deals completed: 601 M&A, Private Equity and Venture Capital fintech deals were finalised in the UK in 2021, up 27% from 470 in 2020. The investment total was also strengthened by the size of many of the deals, which included the £10.94 billion Refinitiv deal in January 2021.

Five out of the ten largest fintech deals in the EMEA region were completed in the UK, including J.P. Morgan’s acquisition of Nutmeg for £731 million and Visa’s acquisition of CurrencyCloud for £688 million. Valuations have continued to skyrocket. Revolut raised £592 million in H2’21, valuing the company at around £24.4 billion, which on paper was higher than the market capitalisation of NatWest.

Payments have continued to attract the most funding amongst fintech sub-sectors globally. Buy now, pay later (BNPL) businesses have continued to gain traction as a result of the e-commerce boom that has been driven by the pandemic, with the likes of Zilch and Butter rising to prominence in the UK.

Crypto-asset and blockchain companies have received an influx of funding over the last 6 months, and a more diverse range of actors are considering investment in this space. We also have seen increased institutional adoption. Non-fungible tokens (NFTs) have been a particularly hot area of interest, with the likes of Adidas and Manchester City Football Club piling in on the trend. This is likely to remain a hot topic, as infrastructure continues to be developed.

Global insurtech funding is growing significantly and recent success stories indicate that the market is maturing. For example, in the UK Zego raised £111 million in their Series C round in March 2021 (reaching unicorn status) and Bought By Many raised £259 million in their Series D round in June. Many see the holy grail of insurance as becoming central to the future of the digital ecosystem, which is reflected in the strategy of many Insurtech organisations.

The ESG space is relatively nascent, but there is certainly growing interest, bolstered in part by the COP26 conference that was held in Glasgow towards the end of 2021. There has been a rise in the number of new entrants, but there are some funding challenges in this space – the financial dynamics mean that it is difficult for these businesses to scale. We are likely to see increased levels of investment flowing into ESG-focused fintechs as the ecosystem continues to evolve.

Investment trends witnessed in 2021 are likely to continue into 2022, although interest rate increases in the UK started to come through in December, which may impact investor sentiment going forward. Valuations are likely to remain high, as pricing has remained fairly consistent. Fintechs remain strategically important for the UK’s economic growth prospects. It is therefore vital that ongoing work to nurture them continues if the UK is to remain a magnet for investment.

Figures accurate as of 14th February 2022.