Fintech investment in crisis but London remains ‘European capital’

Despite the sharp drop in fintech funding in the UK, it still remains the leader of the sector in Europe.

UK fintech investment dropped by $12.3bn (£9.8bn) last year, falling 34 per cent, but the country remained the lead investor in Europe.

Fintech investing across the Europe, Middle East and Asia region halved last year, falling from $49.6bn in 2022 to just $24.5bn, its lowest level in seven years, data from KPMG revealed.

John Hallsworth, client lead partner for banking and fintech at KPMG UK, credited the sharp drop-off to geopolitical and economic uncertainty over the conflicts in Ukraine and the Middle East, as well as the high interest rate environment.

However, Hallworth stressed that even as UK investment fell to its lowest level since 2020, this was not “isolated to the UK”, and that it remains “the capital of European fintech innovation“.

He noted that last year, British fintechs attracted more funding than those in France, Germany, China, India, Brazil and Canada combined.

The largest fintech deal in Europe last year was the $6.9bn in private equity raise by UK-based Finastra.

Globally, fintech funds reached a six-year low of $113.7bn across 4,547 last year, down from $196.6bn in 2022.

The payments space continued as the largest sector to receive funding, despite dropping from $57.9bn to $20.7bn. Only proptech and insurtech saw investment rise, growing from $4.1bn to $13.4bn and $5.9bn to $8.1bn, respectively.

“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 common consensus that this will be in Q3/Q4,” added Hallsworth.

Karim Haji, global and UK head of financial services at KPMG, added: “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.”