UK fintech investment falls 56% to £14.42bn in 2022
After an incredibly strong 2021, with total fintech investment in the UK reaching £32.46bn, 2022 saw a drop of 56% to £14.42bn. 593 UK M&A, Private Equity (PE) and Venture Capital (VC) fintech deals were completed in the year, which was down from 724 in 2021. A combination of rapidly shifting market conditions, higher interest rates and inflation, and downward pressure on valuations ultimately resulted in a decline in total investment into UK fintechs in 2022.
However, despite this drop, the UK remains at the centre of European fintech investment, with UK fintechs attracting more funding than their counterparts in the rest of EMEA combined. Five out of the ten largest fintech deals in EMEA were completed in the UK.
Payments once again attracted the most funding across the fintech sub-sectors in the UK, accounting for £2.99bn of investment in 2022. Despite a year-on-year decline, deal volume remained robust.
Regtech was also able to buck the downward trend and attract a record £15.4bn in global investment, well above the previous record of £10m in 2021. Cost of compliance remains a key driver of investment into regtech companies.
Wealthtech also had a strong year despite the decline from 2021’s investment peak, with a growing number of players expanding solutions to a broader base of investors across alternative asset classes. The energy crisis saw ESG gain significant traction, and this has contributed to increased interest from investors in solutions that are able to combine wealth management with ESG principles and outcomes.
Global investment into insurtech fell to a seven-year low in 2022. Insurtech investors have shifted their focus away from growth to profitability. However despite the overall slowdown, H2’22 saw some large deals in this space.
Despite recent turbulence, cryptocurrency remained a significant driver of activity. In the UK, this was bolstered by the large VC raise by UK-based Blockchain.com (£406m). However, it is likely that investment into crypto-focused firms will slow in H1’23 as investors look to enhance their due diligence processes related to investments in this space.
Global investment totalled £136.1bn across 6,006 deals in 2022, a decrease from the record high of £198.12bn across 7,321 deals in 2021. Corporate-participating VC investment globally fell to £32.84bn from £52.08bn last year. However, interestingly, despite the median deal size falling for later stage VC deals, it actually rose for angel, seed-stage and early-stage VC deals.
Despite the significant drop from 2021, it is worth noting that 2022 was the third best year for fintech investment ever and the second best year for deal value.
What can we expect in 2023?
Fintech investment is likely to remain relatively subdued in H1’23, as the challenging economic conditions experienced in 2022 are expected to prevail. However, there are a number of fintech sub-sectors that are expected to be more resilient than others. Key predictions for H1’23:
- M&A deal sizes will be relatively smaller with valuations expected to remain fairly unstable for H1’23, the likelihood of mega-M&A transactions will be relatively low.
- B2B solutions will continue to attract solid investment with cost-cutting and the need to drive more customer value at the forefront of companies’ agendas, B2B solutions will remain a key priority for investment.
- Interest in non-crypto blockchain-based solutions will grow as investors pull back on making investments in crypto, other areas of blockchain innovation will see growing interest.
- AI-driven fintech solutions will gain more attention from investors areas such as AI-based data analytics, real-time risk assessment and customer engagement will see growing interest.
- Regulators will put more scrutiny on the crypto space given events of 2022, global scrutiny in this space is inevitable.
- ESG-focused fintechs will see growth with climate change a major priority for governments, businesses, and consumers alike, interest and investment in fintech solutions aligned to ESG will grow significantly.
All currency figures converted from USD to GBP using the conversion rate as of 9th February 2022.