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UK fintechs raise $4.1bn despite Brexit and pandemic

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·Senior City Correspondent, Yahoo Finance UK
·3-min read
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Revolut CEO, Nikolay Storonsky speaks at the Web Summit in Lisbon, Portugal, November 7, 2019. REUTERS/Pedro Nunes
Revolut CEO, Nikolay Storonsky speaks at the Web Summit in Lisbon, Portugal, November 7, 2019. Photo: REUTERS/Pedro Nunes

Britain retained its crown as the financial technology — fintech — capital of Europe last year, despite Brexit negotiations that went down to the wire and the impact of COVID-19, which hit the UK disproportionately hard.

UK fintechs raised $4.1bn (£3bn) in 2020, according to data compiled by industry group Innovate Finance. Notable deals included Revolut raising $580m and Monzo raising $166m.

The UK’s fundraising total was down 9% on 2019 but far surpassed investment into the UK’s nearest European rival, Germany, where fintech startups raised $1.4bn. The UK ranked second only to the US globally in the terms of total investment for private fintech businesses.

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“Now more than ever, we should celebrate the strong position the UK has carved out at an international level,” said Charlotte Crosswell, chief executive of Innovate Finance. “We are a world-leading fintech hub, and as the figures reveal, the epicentre of fintech in Europe – despite the many challenges thrown our way.”

The UK retailed its pole position despite the Brexit overhang and the impact of the COVID-19 pandemic.

Britain spent much of the year negotiating a free trade deal with the EU, which created uncertainty for businesses. A deal was eventually struck on Christmas Eve but it largely avoided any discussion of financial services.

Iana Vidal, Innovate Finance’s head of policy and government affairs, said adjusting to Brexit had been a “significant drain” for UK fintechs last year.

“A number of fintechs either acquired licenses in other European countries or they set up entities in various different places,” she said. “Places like Amsterdam or Dublin were net beneficiaries.”

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COVID-19 also cast a pall. The pandemic battered the global economy but nowhere more so than Britain. A long initial lockdown meant the UK suffered the worst economic contraction of any developed nation in 2020. For many fintechs, the shutdown led to collapsing revenues and forced some into layoffs and down rounds.

“The pandemic has created new barriers for many companies seeking funding, so it is all the more vital that we support our innovative companies to fuel their future success and growth,” Crosswell said.

While the UK retained its funding crown in Europe, the decline in total investment was out of step with the broader market. Globally, investment in fintech rose 14% to $44bn and investment in US companies rose 29%.

READ MORE: Revolut's losses jump to £100m as business surges

Vidal said there was a “quiet optimism” in the UK fintech sector despite continued uncertainty about future UK-EU trading rules for financial services.

“It’s an element of wait and see as to what comes next,” she told Yahoo Finance UK. “This process over the last four years has shown things like this don’t happen quickly. Fintech is naturally a fast-moving sector and environment so who knows where it will be in 12 months time.”

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