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UK Fintech Startup Ecosystem Emerges From Difficult Year After Funding Fell by 63% in 2023

In the midst of difficult macroeconomic conditions and increasing pressure on firms in the region, the UK fintech startup ecosystem saw funding drastically decline in 2023, compared to previous recent years; according to the 2023 Tracxn ‘Geo Annual Report’.

Research firm Tracxn revealed that the UK fintech startup ecosystem secured $4.2billion in funding throughout 2023 – representing a 63 per cent decline from the $11.2billion raised in 2022, and a 70 per cent fall from the total funding raised in 2021.

The annual report, ‘UK FinTech 2023‘, was based on Tracxn’s extensive database and looks to provide a round-up of funding and other major developments in the UK fintech space last year.

According to the report, the UK FinTech startup ecosystem ranks second after the US for funding, in 2023. It boasts over 13,000 fintech companies, accounting for nearly 10 per cent of all fintech firms worldwide.

With its leading talent pool, stronger fintech adoption rate, a larger concentration of financial and professional services organisations, and forward-thinking legislation, the UK has become a major focus for fintech companies. Despite these advantages, the space has witnessed a downward trend in funding in 2023. Tracxn attributes this decline to the current macroeconomic conditions characterised by escalating interest rates, inflationary pressures, and a notable surge in gas prices within the region.

Number of funding rounds also takes a hit

The overall number of funding rounds also decreased by 42 per cent, from 418 rounds in 2022 to 241 rounds in 2023. The drop in funding is primarily due to a downward move in late-stage and early-stage funding.

The sector attracted late-stage investments worth $2.7billion in 2023, 60 per cent lower than the $6.8billion raised in 2022. Early-stage funding fell 68 per cent to $1.2billion in 2023, compared with $3.7billion raised in 2022. Seed-stage funding, too, saw a 50 per cent decrease to $321million in 2023, from $647million in the previous year.

In 2023, quarterly funding for the UK fintech startup ecosystem experienced a steady decline from Q1 to Q3, reaching its lowest point in Q3 at $410million, marking the least funded quarter since 2019. However, there was a notable turnaround in Q4, with funding increasing by 193 per cent to $1.2billion, compared with the previous quarter.

Downward trends continue

Tracxn also noted a reduction in the number of acquisitions. A total of 66 acquisitions took place in the fintech UK sector in 2023, lower than 70 in 2022 and 95 in 2021.

Worldpay, a global provider of payment processing solutions, was acquired by GTCR Digital for $18.5billion. This was the highest-valued acquisition in 2023, followed by Adenza, which was acquired by Nasdaq for $10.5billion.

The cryptocurrency sector in the UK raised $866million total funding in 2023, a drop of 54 per cent compared with the $1.9billion funds raised in the previous year. Funding also fell for the alternative lending sector by more than 42 per cent to $865million in 2023 – from $1.5billion raised in 2022. While funding across the industries has seen a decline, regtech and Insurance IT emerged as least affected sectors, with an overall funding drop of less than 25 per cent compared to the funding received in 2022.

In terms of city-wise funding, London unsurprisingly took the crown, accounting for 81 per cent of the UK fintech funds raised in 2023. Fintech companies headquartered in London raised $3.5billion in 2023, followed by those based in Colchester ($150million) and Blyth ($122million).

Over the past five years, London has consistently secured the highest amount of funding in the UK fintech sector. It has now become the second-largest globally funded city in this industry after San Francisco.

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