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Time for the ‘Next Wave of Fintech’? KPMG Optimistic Despite UK’s Lowest Investment Since 2020

UK fintech investment dropped to $12.3billion in 2023, significantly down by 34 per cent compared to $18.7billion invested in 2022; according to KPMG in its latest bi-annual ‘Pulse of Fintech’ investment report.

Geopolitical and macroeconomic uncertainty caused by conflicts in Ukraine and the Middle East, a high-interest rate environment, and tight liquidity across regions saw fintech investors holding onto their cash throughout much of 2023.

UK fintech industry hits low but investment ‘likely’ to pick up

UK fintech investment in 2023 was the lowest since 2020 ($6.5billion) and the Covid-19 pandemic. Disregarding 2020 as an outlier year means that UK fintech investment in 2023 hit its lowest level since 2017 ($11.21billion).

However, despite the downturn, British fintechs still attracted more funding than those in France, Germany, China, India, Brazil and Canada combined. Meanwhile, the largest fintech deal in Europe in 2023 was a $6.9billion private equity raise by UK-based financial software provider Finastra.

John Hallsworth, client lead partner banking and fintech at KPMG UK
John Hallsworth, client lead partner banking and fintech at KPMG UK

John Hallsworth, client lead partner for banking and fintech at KPMG UK, explains that the difficult global challenges made 2023 “an incredibly tough year” for the fintech industry in the UK.

“While there were good deals to be had, fintech investors increased their scrutiny of potential deals, putting a sharp focus on the viability of business models, as well as on profitability,” says Hallsworth.

“This downturn is not isolated to the UK and despite the drop in investment, the UK remains the capital of European fintech innovation with British fintechs still attracting more funding than those in France, Germany, China, India, Brazil and Canada combined.”

Hallsworth also suggests that investment in UK fintech may see an upturn towards the end of 2024: “Looking ahead to the first half of 2024, investment in the UK fintech sector is expected to remain relatively soft, although investment will likely begin to pick up as interest rates reduce with the common consensus that this will be in Q3 or Q4.”

‘Coming into the next wave of fintech’

Total global fintech funding across mergers and acquisitions, private equity and venture capital reached a six-year low of $113.7billion across 4,547 deals in 2023, down from $196.6 billion across 7,515 deals in 2022. The payments space continued to account for the largest share of fintech funding among the fintech subsectors, despite a drop from $57.9 billion to $20.7 billion between 2022 and 2023.

Of the major fintech subsectors, only proptech and insurtech saw total investment rise year-over-year, with proptech investment rising from $4.1billion to $13.4billion, and insurtech investment growing from $5.9billion to $8.1billion.

Karim Haji, global and UK head of financial services at KPMG, also added: “The fintech market has been evolving and maturing since it got its start in 2004 and really came into its own in 2008. The technology underpinning fintech keeps changing, and we’re seeing the pace of change accelerate with the application of AI and generative AI.

“You could say that we’re coming into the next wave of fintech. While the investment numbers are soft now – due to broader market conditions – the next year could be quite exciting for innovation in the fintech space.”

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