UK fintech drops 57% to $5.9bn in H1
According to KPMG, 215 UK M&A, PE and VC fintech deals were completed in H1 2023, down from 392 in H1 2022
Total UK fintech investment dropped to $5.9bn (£4.6bn) in the first half of 2023, down 57% from $13.8bn (£10.8bn) in the same period in 2022, according to KPMG’s Pulse of Fintech report, a bi-annual report on fintech investment trends.
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, 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.
The first six months of 2023 were difficult for the fintech market globally, with both total funding and the number of deals dropping, from $63.2bn (£49.6bn) across 2,885 deals in H2 22 to $52.4bn (£41.1bn) across 2,153 deals in H1 23.
But not all the news was negative in H1 23. Globally, a number of sectors attracted robust funding during the first half of 2023. Supply chain and logistics-focused fintechs attracted $8.2bn (£6.4bn) in funding in H1 23, well above the space’s 2019 annual record of $5.5bn (£4.3bn). Green fintech also had robust interest, with $1.7bn (£1.3bn) of funding during H1 23, already slightly ahead of its 2022 results of $1.5bn (£1.1bn).
Judd Caplain, Global Head of Financial Services at KPMG International, added: “It wasn’t a surprise to see fintech funding decline in the first six months of 2023, given the enormous headwinds pressuring the market at the moment. But the long-term business case for many subsectors within fintech remains very strong—particularly for sectors like payments, insurtech, and wealthtech. Once market conditions begin to even out, funding will likely rebound–if not to the record level experienced in 2021.”
According to KPMG, 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.
The UK attracted half of the region’s ten largest deals in H1 23, including the $3.1bn (£2.4bn) buyout of data insights firm Wood Mackenzie by Veritas, a $602m (£473m) raise by AI-powered lending company Abound, and a $250m (£196m) raise by e-trading platform eToro.
John Hallsworth, client lead partner for banking and fintech at KPMG UK, said: “Despite a slowdown in UK fintech investment compared to last year, the UK remains at the centre of European fintech innovation with British fintechs attracting over half the funding of Europe.”
In addition, during H1 23 the UK passed the 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.
Hallsworth added: “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.”
