Investment into the UK’s fintech sector slumped eight per cent last year but remained well ahead of rival hubs in Europe and Asia amid a sharp global slowdown, fresh data reveals.
Soaring inflation and the shocks of war in Ukraine brought an end to a decade-long global venture capital frenzy last year.
The UK’s fintech sector attracted some $12.5bn worth of capital, down from a bumper year in 2021 which saw $13.5bn pumped in the country’s fintech firms, according to data shared exclusively with City A.M. from the UK’s fintech industry body Innovate Finance.
London firms attracted the lion’s share of the investment with $10.2bn invested in 2022, down only five per cent 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 $92bn, 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 $39bn worth of backing. India attracted $5.5bn worth of investment, while Singapore and Germany registered $5.5bn and $2.9bn respectively.
Venture capital dries up
Sharp rate hikes by central bankers and souring perceptions of high-growth loss-making firms have shifted the landscape for fintech 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 $20bn valuation at the start of the year but was forced to row back the plans and raised $590m at an $8bn valuation. Checkout.com also reportedly slashed its internal valuation at the end of the year to $11bn.
The slump underscores the scale of the challenge facing the sector as policy makers 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 on 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 comments shared with City A.M.