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UK Fintech Funding Remains Resilient Against Economic Shocks Despite 13% Decline

UK Pound Coin
January 30, 2023

UK Fintech Funding Remains Resilient Against Economic Shocks Despite 13% Decline

Despite a significant drop in the total amount being secured, the UK’s fintech industry remains a top destination for start-up funding; finds a new report.
Dubbed the fintech capital of the world, the UK retains its title as one of the top fintech centres by means of start-up funding; the Tracxn Fintech UK report suggests.

The latest analysis from the data intelligence platform provides valuable insight into the trajectory of the UK fintech funding space.

Year-on-year funding
Although receiving $12.9billion in 2021, the report indicates how funding in UK fintech start-ups failed to surpass this success in 2022. The data shows a 13 per cent tumble in year-on-year (YoY) figures, with start-ups receiving $11.2billion in funding last year.

The report attributes this decline to an observed 26 per cent drop in late-stage funding, which fell from $9.8billion recorded in 2021 to $7.2billion last year. Additionally, the frequency of funding rounds in excess of $100million also declined, falling 34 per cent from 35 rounds in 2021 to 23 rounds in 2022.

However, this was also accompanied by notable increases in other areas of investment. For example, the report brings to light a 34 per cent YoY rise in early-stage investments, which increased from $2.6billion to $3.4billion last year.

Likewise, the average ticket size for seed-stage investments also increased by 26 per cent, while the average ticket size for early-stage funding rose by 76 per cent during this same period.

Fintech resiliency
The report recognises the wider impact of world events on the fintech industry and the consequences it is having on investor behaviours.

According to the findings, the first quarter of 2022 witnessed the highest-ever level of funding in the UK fintech sector. However, investments only declined after this peak, with total funding falling 66.7 per cent between the first and second halves of the year. The first six months of 2022 saw the UK fintechs securing $8.4billion, while the second half drew in only a fraction of this figure at $2.8billion.

The report associates this behaviour with the ongoing war in Ukraine, which has ultimately increased the cost of energy while triggering an economic downturn as a result.

However, the report states that funding in the UK’s fintech sector has remained somewhat resilient to these market shifts, outperforming the results of the US, China and India.

Best performers
In addition to tracking various investment behaviours, Tracxn also recognises the UK’s top movers and shakers in the space.

Naming names, the report identifies Y Combinator, SFC Capital and Development Bank of Wales as the three primary seed-stage investors, while Octopus Ventures, Force Over Mass and LocalGlobe remain the UK’s top early-stage investors.

Likewise, leading late-stage investors are Dawn Capital, BlackRock and Toscafund Asset Management.

In terms of the best-performing funding round, the award goes to the wealth management tech company FNZ, which raised $1.4billion from Motive Partners and the Canada Pension Plan investment board during a private equity round in February 2022.

In terms of the top-performing business models for funding in 2022, the report pinpoints these as models relating to payments, investment tech, cryptocurrencies and/or banking tech.

Yet despite their high performance, the YoY proportion of funding towards the banking tech and payment sectors fell by 55.7 and 31.4 per cent respectively. These noted figures are attributed to rising inflation, which is restricting consumers from spending on services that are not absolutely necessary.

On the other side of the coin however, the report identifies an opposing rise in funding for the investment tech and cryptocurrency sectors, which during 2022, experienced a 206.6 and 107 per cent YoY rise in funding respectively.

In Europe, the UK is currently the largest market for cryptocurrencies in terms of transaction value, proving the island nation to be an attractive investment opportunity for investors looking to venture into this space.

As noted in previous research, this behaviour has resulted in fewer fintechs achieving unicorn status. According to Tracxn, just six fintechs achieved this feat last year, compared to the 14 that passed the $1billion mark the year previous.

Cultivating a fintech hub
The UK government has taken measures to position the UK as a global hub as a fintech hub, and as an epicentre for crypto asset technology especially. In this way, the country’s government has been an active participant in the formation of crypto asset regulation.

This includes limits on foreign companies selling into the UK, restrictions on advertising crypto products and provisions on how to deal with collapsed companies.

The report anticipates that the introduction of regulatory frameworks in the UK will encourage investment in the sector and build trust among consumers. In terms of total funding to date, London has attracted the maximum investment with $43billion, followed by Edinburgh with $1.5billion and Blyth with $731million.

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