Despite shrinking FinTech funding, London leads rivals

By Puja Sharma

Funding in the UK’s FinTech sector slumped 8% last year but remained ahead of rival hubs in Europe and Asia amid a sharp global slowdown, according to newly published data from FinTech industry body Innovate Finance.

According to the data, the UK’s FinTech sector attracted some $12.5 billion worth of capital, down from a bumper year in 2021 which saw $13.5 billion pumped into the country’s FinTech firms.

London firms attracted the lion’s share of the investment with $10.2 billion invested in 2022, down only 5% from 2021 amid a sharp global slump.

Contractions in UK funding were markedly smaller than the global average as total global investment fell by nearly a third to $92 billion, with the total number of investment deals around the world tumbling to 5,263 from 6,146.

Innovate Finance chief Janine Hirt said the UK’s sector was ahead of its European rivals and stayed robust in the face of the global downturn.

“UK Fintechs are holding the fort in securing great levels of investment in challenging economic times, a testament to the resilience and strength of our sector,” she told City A.M. Our latest report shows that the UK is still receiving more investment in Fintech than all of the next 10 European countries combined,  and remains second in the world only to the US.”

UK investment came in second only to the US, which notched $39 billion worth of backing. India attracted $5.5 billion worth of investment, while Singapore and Germany registered $5.5 billion and $2.9 billion respectively.

VC funding dries up

Sharp rate hikes by central bankers and souring perceptions of high-growth loss-making firms have shifted the landscape for investment and caused venture capital firms to rein in their investments.

Volatility on global markets has also largely scuppered planned IPOs and led to high-profile valuation ‘haircuts’ for fintech firms.

London firm Sumup was reportedly targeting a $20 billion valuation at the start of the year but was forced to row back the plans and raised $590 million at an $8 billion valuation. Checkout.com also reportedly slashed its internal valuation at the end of the year to $11 billion.

Challenges

The slump underscores the scale of the challenge facing the sector as policymakers and regulators in the UK look to boost its standing as a hub for global FinTech firms.

Ministers have rolled out a swathe of reforms in the past 12 months in a bid to boost the UK’s appeal as a place for FinTech firms to grow and go public. Digital Economy Minister Paul Scully said the government was now looking to throw its weight behind the sector in the year ahead.

“In 2023 we are focusing on maintaining that lead by supporting start-ups, boosting digital skills, and making this country an even more attractive destination to found, grow and invest in tech businesses,” Scully said in the report.

Rising interest rates, surging inflation, and the shockwaves caused by the war in Ukraine brought an end to a decade-long global venture capital frenzy last year.

Commenting on the findings, Khalid Talukder, co-founder of London FinTech firm DKK Partners said, “London’s FinTech industry has consistently proven itself to be both robust and ambitious in the face of economic challenges. As businesses brace for a turbulent 2023, FinTech firms can play a vital role in enabling international trade, faster payments, and delivering FX services to companies seeking to boost productivity. Our industry can and will bounce back quickly, driving growth, job creation, and enabling businesses to reach their full potential.”