UK fintech investment down 34% in 2023, but remains the European lead
- Total UK fintech investment dropped to £9.75bn in 2023, down 34% from £14.82bn in 2022.
- 456 UK M&A, Private Equity and Venture Capital fintech deals were completed in 2023, down from 706 in 2022.
- British fintechs are still attracting more funding than those in France, Germany, China, India, Brazil and Canada combined.
- The largest fintech deal in Europe in 2023 was the £5.47bn PE raise by UK-based Finastra.
- Dealmakers remain cautious, but areas of interest such as buy now, pay later solutions remain appealing.
Geopolitical and economic uncertainty, fuelled by events including the conflicts in Ukraine and the Middle East, the high interest rate environment, and tight liquidity across regions, resulted in a significant decline in fintech investment across the world. UK fintech investment in 2023 was at the lowest level since 2020, when the impact of the Covid-19 pandemic caused investment to drop substantially to £5.15bn. If we remove 2020 as an outlier year, UK fintech investment in 2023 was at its lowest level since 2017 (£8.89bn).
Since 2008, the fintech market has continued to evolve and mature. The technology underpinning the market continues to develop, and we’re seeing the pace of change accelerate significantly with the application of AI and generative AI. While the investment numbers are soft now – due to broader market conditions – 2024 could be a very exciting year for innovation in the fintech space.
Key insights from the EMEA region
Total fintech investment in the EMEA region dropped to £19.42bn in 2023, down from £39.32bn in 2022. This was the lowest level of fintech funding in EMEA in seven years.
The seven largest deals of H2’23 occurred in five different jurisdictions, which highlights the strength of the fintech sector across EMEA, despite the current market softness.
Investors are becoming increasingly interested in short-term SME financing solutions. Within Europe, particularly the UK, there’s been a strong growth in the uptake of buy now, pay later solutions, with a growing acceptance of the multiple payments business model. While many of these solutions have been focused on the B2C space, investors have increasingly shown interest in solutions aimed at providing SMEs with more flexible short-term financing solutions and their own BNPL products and services.
There are ongoing efforts to support open banking and open finance across the region. During 2023, the EU proposed a number of new rules which are focused on improving the digital financial services landscape and safeguards for consumers, including a new Payment Services Directive (PSD3) and a new framework for financial data (FIDA).
There’s been an enormous rise in buy now, pay later and short-term lending over the last six months, particularly in the UK. Now, we are seeing players in the space starting to take that B2C business model and target it at the SME sector – so, providing short-term financing and B2B payments options to companies and small enterprises. It will be interesting to watch the progress of this sector over the coming months to see the impact of any regulation and/or consolidation.
2023 key global highlights
- The Americas attracted £62.07bn across 2,136 deals in 2023 - of which the US accounted for £58.26bn across 1,734 deals. The EMEA region attracted £19.42bn across 1,514 deals, and the ASPAC region attracted £8.56bn across 882 deals.
- Global M&A deal value dropped from £77.84bn in 2022 to £44.71bn in 2023 and global VC investment declined from £70.39bn to £36.7bn year-over-year. PE growth investment showed the most resilience, up from £7.61bn in 2022 to £8.72bn in 2023.
- Payments remained the strongest area of fintech investment globally in 2023, with £16.41bn of investment received compared to £45.98bn in 2022. 2023 investment in other notable sectors included proptech (£10.62bn), insurtech £6.42bn), crypto and blockchain (£5.95bn), regtech (£2.06bn), ESG fintech (£1.82bn), and cybersecurity (£1.03bn).
- Corporate-participating VC investment globally fell from £36.38bn in 2022 to £19.98bn in 2023.
A storm of global challenges made 2023 an incredibly tough year for the UK fintech market. While there were good deals to be had, fintech investors increased their scrutiny of potential deals, putting a sharp focus on the viability of business models and on profitability.
Conversion rate accurate as of February 2024 from USD to GBP.
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