Total UK fintech investment dropped to $5.9bn (£4.6bn) in the first half of 2023, down 57% from $13.8 billion 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 (the ongoing conflict between Russia and the Ukraine), 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.
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 regions ten largest deals in H1 23, including the $3.1bn buyout of data insights firm Wood Mackenzie by Veritas, a $602m raise by AI-powered lending company Abound, and a $250m raise by e-trading platform eToro. Other countries that attracted large deals included France (Ledger — $493m), Switzerland (Teylor — $299m; Metaco — $250m), Sweden (SignUp Software — $229m), and Germany (Moonfare – $152m).
KPMG UK client lead partner for banking and fintech, John Hallsworth, 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.”
During H1’23, the UK passed 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.9
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By GlobalDataHallsworth 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.”
The first six months of 2023 were difficult for the fintech market globally, with both total funding and the number of deals dropping, from US$63.2bn across 2,885 deals in H2’22 to US$52.4bn in across 2,153 deals in H1’23.
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 US$8.2bn in funding in H1’23—well above the space’s 2019 annual record of US$5.5bn. Green fintech also had robust interest, with US$1.7bn of funding during H1’23— already slightly ahead of its 2022 results (US$1.5bn).
KPMG International global head of financial services, Judd Caplain, concluded: “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.”
