The UK’s fintech sector is facing a precarious future, with statistics revealing that nearly half of the firms in the industry are at risk of failure by the end of 2023, a report warns.
According to a poll of more than 250 fintechs by specialist business advisory firm FRP, 48 per cent of businesses in the sector lacked confidence in their ability to navigate the next six months, primarily due to ongoing challenges related to inflation and interest rates.
FRP’s analysis identified an elevated risk among smaller businesses, with 52 per cent expressing concerns about their solvency. Surprisingly, worries about insolvency persisted even among more established fintech companies, as 38 per cent of those with at least 50 employees admitted being at risk.
These anxieties are likely fueled by the persistently challenging trading conditions, as 23 per cent of the surveyed firms experienced a decline in their business valuation over the past year due to rising input costs. Additionally, almost a third predicted a further decline in their valuation within the next year.
Looking forward
With a considerable number of fintech firms facing uncertainty about their future prospects, the research sheds light on a distinct divergence in funding dynamics within the market. This indicates an intensified competition among venture capitalists and lenders to back high-quality ventures.
Against the backdrop of rising interest rates, 41 per cent of fintech firms encountered greater difficulties in securing funding over the past year, while an equal number (43 per cent) reported improved access to finance.
A significant majority of those surveyed indicated that they had reassessed and adjusted their exit strategies over the past year. Among the various options, consolidation emerged as the favoured choice, while an optimistic one-third expressed a more assertive approach by actively pursuing new acquisitions. These findings hint at the possibility of an impending surge in M&A activity within the fintech sector.
Dan Conway, partner and restructuring specialist at FRP, underscored the international renown of the UK’s fintech sector. However, he emphasised that the industry’s early-stage growth relies heavily on investor support to drive early-stage growth as new products and technologies gain traction and become commercially viable.
“Interest rates and broader economic headwinds are clearly a challenge, with funders ultimately becoming more diligent in how and where they deploy their capital – particularly with other sectors offering potentially safer bets,” he said.
“The number of businesses pursuing M&A strategies suggests many remain in rude health and are likely to lead a market reset in pursuit of both new customers and innovative IP. For those eyeing consolidatory support, the coming months will be crucial in optimising their commercial operations and future profitability to develop the best proposition for would-be suitors or new investment.”
Regional differences
Significantly, companies located in the thriving fintech hubs of the Midlands (58 per cent) and the North East (56 per cent) were deemed to be at the highest risk, whereas cities like Manchester and Leeds in the North (42 per cent) displayed greater confidence in their financial wellbeing.
The level of concern among London-based firms regarding their ability to sustain business over the next six months (46 per cent) closely aligned with the national average.
FRP’s research also yielded noteworthy insights into perceived gender equality challenges within the sector, with female leaders experiencing higher rates of success compared to their male counterparts. For instance, over half of female decision-makers reported a growth in their firm’s value in the past year, while only 38 per cent of males could claim the same achievement. Furthermore, a third of female fintech leaders noted an acceleration in their growth trajectory, indicating their increasing momentum in the industry.
