Fintech investment in the UK fell last year. According to one KPMG report, it corrected itself from a record-breaking $39 billion in 2021, to $17.4 billion in 2022, a 56% drop. Innovate Finance also recorded an 8% dip in Venture Capital (VC) investment.
For most of us, the market correction was a predictable byproduct of the COVID tech boom. Yet, disappointingly, these figures led some outlets to post floods of disparaging articles. Over the last few months, almost every day there’s been a news piece doing another hatchet job on Britain’s fintech sector.
It’s become fashionable to despair about the UK. Brexit hasn’t gone smoothly, politics have been turbulent, and double-digit inflation is nobody’s idea of a good time.
However, when it comes to fintech, I’m not prepared to sit back and let the naysayers dominate the conversation. The UK’s fintech sector does not deserve this. It’s one of the most robust, creative, and innovative industries in the world. Even during a market correction, it still generates more investment than the top 13 European fintech hubs combined. 21 of the UK’s 44 unicorns are fintechs. As COVID demonstrated – in the face of global uncertainty, UK fintech is still one of the few sure things.
CEO of Innovate Finance, Janine Hirt, feels the same way. “The UK FinTech industry is continuing to attract funding year on year”, she asserts. “Even in a challenging global market, the UK remains the second most attractive investment destination in the world, receiving $12.5 billion of FinTech VC investment in 2022 – this represents just an 8% drop in investment from 2021 – versus a 30% drop globally.”
In this article, I’m going to balance out some of the negative press. I’ll drill down into the figures and uncover what makes the UK such an extraordinary place to grow and scale your fintech.
Putting the figures into perspective
The UK was not alone in experiencing a rush of fintech investment in 2021. As COVID-19 gripped the world, there was an insatiable appetite for tech. Usage of video conferencing app Zoom, for example, rocketed by 2,900%. Even long-suffering incumbent banks finally kicked the inertia and ditched their legacy technology in favour of software. In 2021, 73% of European bankers named digital transformation as a top priority.
VCs smelled opportunity in the air. Global fintech investment soared from $45.9 billion in 2020 to $130.6 billion in 2021. Impressively, the UK swept up a hefty $39 billion – over 35% of all worldwide funding. It’s a testament to the sector. In the darkest times, investors put their money where their trust is.
“UK FinTech played a special and unique role in helping so many of us navigate through the challenges of the last few years, including the COVID pandemic”, agrees Hirt.
Source: Innovate Finance
After the vaccine roll-out brought things back to normal, it’s natural that money flowed into the space fell too. After all, the investments had already been made. Globally, fintech funding dipped by 29.4%.
As the UK received a disproportionately large share of the cash flow, it seems only logical that the dip would also be greater. There was always going to be a market correction. All things considered, the UK fintech sector has shown remarkable steadfastness.
Does this deserve a barrage of doom and gloom? I don’t think so.
It feels short-sighted to imply that because funding fell after the pandemic, the UK’s fintech sector is somehow now cursed. On the contrary, when I dig deeper into the numbers, I see a healthy market cycle, ticking like clockwork.
Investment life cycles continue
A pattern is emerging. A tour de investment cycle is taking place. Last year, UK fintech investment slumped in the middle section. Compared to 2021, seed funding grew by 18%, early-stage decreased by 38%, later-stage also fell by 16% and growth funding soared by a staggering 73%. By contrast, the year before, these middle sections saw record-breaking highs. It’s like a wave, oscillating.
It seems obvious that the normal life cycle of investing is playing out on a mass scale. COVID-19 triggered a surge of investment, like a shotgun firing at the start of a race. Vast swathes of money moved from pre-seed (2020), to seed (2020), to early-stage (2021), to later-stage (2021), and on to growth funding (2022). The market is breathing, bubbles are correcting, and the money is flowing in a predictable wave.
As controlling shares change hands from VCs to private equity, it’s rational that fintechs expand to new regions like the EU as part of their growth trajectory. Far from being a bad omen, it’s usually a sign of success.
In May 2023, for example, UK-based fintech Equals Group Plc expanded into the EU, by acquiring Belgium-based Oonex for £41.1 million. “The expansion into Europe aligns with the Equals Group’s broader growth strategy, aimed at increasing our global footprint and strengthening our position as a leading payments technology company”, commented CEO Ian Strafford-Taylor.
At the time of writing, 566 UK fintechs are present in 83 countries around the world. British fintechs are reaching new levels of global maturity.
A treasure trove of talent
What makes the UK’s fintech scene so rich? For a start, it’s diverse. The 2,500+ fintechs can be broadly divided into 23 different specialisms. Leading the way are wealthtech (including crypto wallets) and paytech, accounting for more than 50% of UK fintech activity. Other notable sub-sectors include regtech, insurtech, banking, business banking, and quote aggregators.
90,000 skilled workers are employed within the UK’s thriving fintech scene – around 2.4% of the entire working population. It’s little surprise, therefore, that some of the world’s leading voices are based within these borders.
Type “Top Fintech Experts in the World” into Google, and you will be presented with a list of 14 leading figureheads. Seven of them are based in the UK. Chris Skinner, Anne Boden, David M. Brear, Susanne Chishti, Chris Gledhill, Devie Mohan, and David Birch are all global fintech icons.
There are plenty more following in their footsteps. Each year, fintech power lists jostle and overspill with evermore UK-based pioneers. One of the 14 top fintech voices listed is American Bankers’ Most Influential Woman in fintech, Theodora Lau. Lau was in London last week to speak at Fintech Week London.
She reflected on the importance of the UK’s Capital. “London is a melting pot of talent from all over the world, benefitting not only from the tech industries and incumbent banks, but also from top universities in the United Kingdom”, Lau elaborates. “A16z’s decision to open up its first international office in London is a testament to the strong foundation of the city”.
The strong link between academia and fintech plays an important part in the ecosystem. Innovate Finance has partnered with Cambridge University to produce tools, and eight of the UK’s universities offer Masters degrees in Fintech.
Building connections is crucial
The vibrant tapestry of UK-based talent is truly astonishing. If you know where to look, you can find brains to bring your fintech to the next level in almost any way imaginable. From marketing to machine learning, research to regulations, the right person is just one connection away. That’s the magic of the UK fintech market.
To CEO of the Centre for Finance Innovation and Technology, Ezechi Britton MBE, these connections are everything. “By forging partnerships and building collaborations across the ecosystem”, he explains. “We will create the right environment for financial innovation to flourish further.To take the next step we need to make sure we connect learning, open up key data sets and foster the talent that will continue this growth.”
Through my own two decades of experience in the UK’s tech sector, I’ve seen the power of excellent connections firsthand. To help fintechs access the best people, I recently launched Fintech Fringe with Olivia Minnock, an event to support scaling fintechs and myforte – a bespoke service to help fintechs scale and expand in the UK, by sourcing industry-proven experts. We don’t mark up or add any additional margin because the traditional consultancy model just isn’t relevant in today’s cost-conscious times. That’s how strongly I believe in this market. That’s how fierce my conviction is. I’ll put everything on the line, to back fintech growth in this country.
Other companies have emerged to help fintech founders battle the headwinds of creating and scaling in the UK and there are many helpful tools for founders in the pipeline. ShipShape, for example, works as a kind of Tinder for VCs to swipe right on promising start-ups.
Another trailblazing platform is TechPassport, led by CEO Layla White. “For a startup, it’s imperative that you have access to revenue, investment, accelerators and grants from the government”, she comments. Her service, TechPassport provides this. It offers a “central repository for startups”.
Securing funding and regulatory requirements is a mission in every country. But unlike many others, the UK offers government-backed accelerator programs, grants, and favourable regulatory environments. This stands it apart from the rest.
Progressive infrastructure and sandboxes
UK regulator, the Financial Conduct Authority (FCA) recognizes that fintech needs a safe space to experiment and play. In 2016, the FCA created the world’s first regulatory sandbox. It was a more relaxed environment to allow fintech the freedom to grow and flourish.
Inspired by the FCA, today more than 50 countries are experimenting with their own sandboxes. The EU is in the process of creating one, with a particular focus on Distributed Ledger Technology (DLT).
DLT is another area where the UK has already surged ahead. Britain already boasts 249 blockchain-driven fintechs, and is home to the second-highest number of blockchain users in the entire world. This is thanks largely to innovative sandbox thinking. London and Edinburgh, for example, are already some of the global hubs for blockchain and DLT.
Meanwhile, Wales – a small country of just 3 million people – is a world leader in the creation of compound semiconductors. This small chip powers the most cutting-edge biometric technology, found in our laptops, phones, and all over our fintech. Like FinTech Scotland, Innovate Finance, and Fintech NI, the government backed FinTech Wales is also much more than just a cheerleader. It offers comprehensive accelerator programs, grants, and mentorships for young fintechs, some have already grown to become household names.
“We continue to see innovation, especially in the Insurtech space, with the likes of Driverly”, CEO of FinTech Wales, Sarah Williams-Gardener comments. “And we are delighted to report that there’s a new generation of Net Zero, sustainable challenger banks emerging in Wales, such as Zero Bank, Tandem Bank and Frost”.
Open Banking is an area that Innovate Finance is also laser-focused on developing. “As we enter a critical stage of heavy industry engagement with regulators and Open Banking, we need to make sure the voice of FinTechs at every growth stage is amplified”, adds Hirt. If you are a fintech specialising in this field, the UK is the place to be.
The UK’s fintech market continues to scale-up
There is no doubt that the future of UK fintech shines brighter than ever. In 2022, a whopping 32 “megadeals” (transactions worth more than $100 million) took place on British soil. It’s one up from 2021, which saw 31 such megadeals. And, according to Hirt, “the number of UK Fintechs is estimated to double by 2030,”
Today, we are seeing investors, organisations, government bodies, and the FCA using their combined force to push fintech forward. Open banking, embedded finance, sustainable solutions, artificial intelligence, and crypto are just some of the technologies that have soared under this regime. For hopeful founders and start-ups, there is a haven of opportunity waiting to be uncovered.
The extraordinary resilience of UK fintech goes beyond regulators, laws, and sandboxes. It’s the deep expertise, community-mindedness, and knowledge-sharing that keep us strong.
If you are looking for a home for your fintech to scale and grow, the UK remains the obvious choice. Very few can compete with it’s unique capability to accelerate growth and then springboard fintechs so successfully into other global markets.
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