The UK is a top Fintech hub recognized globally for its innovation in financial services. The country has always punched above its weight class when it comes to Fintech and in the past led the charge for Fintech funding in all of Europe.
A new report distributed today puts a bit of a damper on Fintech funding in the UK. Tracxn, a data intelligence firm in India, says the Fintech funding has dropped for the second year in a row.
According to the Tracxn Geo Annual Report: UK FinTech 2023, total funding into UK Fintech early-stage firms fell 63% to $4.2 billion in 2023 from $11.2B in 2022 – a dramatic decline.
At the same time, the number of $100 million+ funding rounds drooped to 9 in 2023 from 25 in 2022.
The total number of funding rounds decreased by 42%, from 418 rounds in 2022 to 241 rounds in 2023.
The report states that quarterly funding for the Fintech ecosystem endured a steady decline from Q1 to Q3, reaching its lowest point in Q3 at $410 million. This is the least funded quarter since 2019, according to Tracnx.
On a positive note, Q4 delivered a decent increase, rising to $1.2 billion or a jump of 193% compared to Q3.
The top-performing sectors of Fintech were Banking, Crypto, and alternative lending. All of these sectors declined versus 2022, with the banking segment securing total funding of $880 million in 2023, a drop of 53% from the $1.9 billion funding raised in 2022.
Crypto declined by 54% to $866 million from $1.9 billion in 2022.
Alternative lending decreased by 42% to $865 million from $1.5 billion in 2022.
VCs Seedcamp, Techstars and Anthemis Group were the most active investors in the UK Fintech sector. Speedinvest, Y Combinator, and Techstars were the most active investors in terms of seed-stage investments in 2023, while Octopus Ventures, Motive Partners, and Augmentum were the most active early-stage investors. SoftBank Vision Fund was the leading late-stage investor in 2023 in UK Fintech.
Another positive note is the report claims that London is the second top city globally for Fintech funding, following San Francisco.
Of course, the decline in Fintech funding is not really due to Fintech innovation but the terrible funding environment that impacted all VC activity. Rapid increases in interest rates and sagging valuations have undermined the funding environment for innovative financial services firms. A better question is, will 2024 be the year things bounce? As interest rates are expected to reverse course, Fintech funding could see a return to growth.