UK sees fintech investment drop to £4.6 billion in H1 2023 – down 57% in a year
It was a difficult first half of the year for the fintech market across the globe. Total global funding and the number of deals dropped from £49.6 billion across 2,885 deals in H2’22 to £41.1 billion in across 2,153 deals in H1’23.
Total UK fintech investment dropped to £4.6 billion in the first half of 2023, down 57% from £10.8 billion in the same period in 2022. The sharp drop-off in fintech investment between H1’22 and H1’23 highlights the cloud of uncertainty permeating throughout the market which continues to wear on investor confidence. Factors including 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. The collapse of several US banks early in 2023 likely also kept many investors in wait and see mode during H1’23.
215 UK M&A, PE and VC fintech deals were completed in H1 2023, down from 392 in H1 2022. Despite the fall in the total number of deals, the UK remains the centre of European fintech investment with British fintechs attracting more funding than their counterparts in the rest of EMEA combined.
Total funding in EMEA fell off a cliff in the first half of the year, dropping from £21 billion in H2’22 to just £8.8 billion in H1’23. On a country-by-country basis, the United Kingdom led the way with over half of Europe’s total fintech deal value and 5 of the largest 10 deals. We anticipate the newly released draft Payment Services Directive 3 will likely help boost interest and investment in fintechs leveraging open banking and embedded finance in the coming quarters.
The UK attracted half of the regions ten largest deals in H1 23, including the £2.4 billion buyout of data insights firm Wood Mackenzie by Veritas, a £472.6 million raise by AI-powered lending company Abound, and a £196 million raise by e-trading platform eToro. Other countries that attracted large deals included France (Ledger — £387 million), Switzerland (Teylor — £234 million; Metaco — £196 million), Sweden (SignUp Software — £179.8 million), and Germany (Moonfare - £119 million).
During H1’23, the UK passed Financial Services and Markets Act 2023. The Act includes a range of measures aimed at enhancing the UK’s leadership and competitiveness in the financial services and fintech spaces. In particular, the Act enables changes meant to make the UK an attractive place to IPO, sets the foundation for the regulation of crypto assets to promote adoption, and establishes sandboxes to facilitate the testing of new technologies in the sector.
Trends to watch for in H2’23
- Increasing focus on embedded payments and embedded finance, catalysed by PSD3.
- Growing attention to wealthtechs focused on democratising access to funding in asset classes once limited to PE firms and other large-scale investors.
- Strengthening focus on the use of AI and intelligent automation across financial services, including in the insurance and wealth management sectors.
- The role of banks evolving to include more partnerships with fintechs, retailers, and other companies, such as through the offering of B2B embedded banking solutions.
- Emergence of UK crypto regulations in an effort to position itself as a global crypto centre.
- Growing M&A activity, particularly from corporates as inflation and interest rates stabilise.
- A thinning out of the number of fintech companies as cash-strapped companies desperate for funding seek sales to other companies.
- Professional investors keeping their spending low. Retaining their power to help their existing portfolio fundings overcome the current drought, avoiding down rounds as much as possible, as multiples in private markets drop following the trend in public markets.
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.
Conversion Rate accurate as of July 2023 from USD to GBP.