The total global funding and the number of deals for fintech has declined, from £49.6 billion across 2,885 deals in the second half of 2022, to £41.1 billion across 2,153 deals in the first half of 2023
Investments in the UK’s fintech sector have slumped by 57 per cent between 2022 and 2023. As per a new study, however, regulating the crypto currency and digital assets sectors in the country could be about to reverse the trend.
At the peak of the clamour for digital disruption, the threat and opportunities created by disruptive fintech companies was said to be of major significance for the financial sector. As financial institutions looked to address complex problems like changing consumer expectations, regulatory pressures and increased competition from digital upstarts, many were said to be turning to innovative fintech platforms for their salvation – something reflected by European investment in the sector at the beginning of 2019 almost doubling on the levels seen over the first six months of 2018.
Since the pandemic, nevertheless, the fintech sector has been cautioned of an ‘existential crisis’, as investors grow tired of waiting for their promised returns amid a number of economic headwinds. Contrary to the pre-2020 view that fintech investment was set to witness an endless surge, interest has notably diminished in the financial technology companies, particularly in the banking sector.
While growing hope in 2021 led to a short relief for the sector, the latest research from KPMG indicates that fintech are once again witnessing a sharp drop in investment. The total global funding and the number of deals for fintech has declined, from £49.6 billion across 2,885 deals in H2 2022, to £41.1 billion across 2,153 deals in H1 2023.
The UK has been no exception to this sharp decline, either – having gone through an even more notable decline in volume and value. In H1 2021, UK fintech saw 380 venture capital, private equity and merger and acquisitions deals – worth £21.9 billion. During the same period of 2022, however, that had slipped to £10.9 billion, across 392 deals.
The decline in the average value of those deals demonstrates a drop in investor-interest, who viewed turning a profit on fintech investments to be an increasingly remote possibility. As such, volume and value have declined further for H1 2023, reaching £4.6 billion over 215 deals.
The total investment in UK fintech has declined by 57 per cent, comparing the first halves of 2022 and 2023. KPMG proposes that factors behind this include high inflation, increasing interest rates, geopolitical tensions, and tech sector challenges have all reduced investor demand. In the meantime, the failure of a number of US banks early this year likely also kept many investors in wait and see mode.
But looking ahead, the researchers propose that trends in digital assets could be about to change the tide for UK fintech. They noted that the emergence of UK crypto regulations could help position the country as a global crypto centre.
John Hallsworth, a partner in KPMG UK’s financial services, open finance and fintech wing, said: 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.