Total UK fintech investment fell to $12.3 billion in 2023, a decrease of 34% from $18.7 billion in 2022, as reported by KPMG’s Pulse of Fintech, a bi-annual analysis of fintech investment trends.
Geopolitical and economic uncertainties, including conflicts in Ukraine and the Middle East, high interest rates, and tight liquidity, led fintech investors to hold onto their cash throughout much of the year. The 2023 investment in UK fintech was the lowest since 2020 ($6.5 billion) and, if 2020 is excluded as an outlier, it represents the lowest level since 2017 ($11.21 billion).
John Hallsworth, client lead partner for banking and fintech at KPMG UK, commented, “A storm of global challenges made 2023 an incredibly tough year for the UK fintech market. While there were good deals available, fintech investors heightened their scrutiny on potential investments, emphasizing the viability of business models and profitability.”
He noted that this downturn is not unique to the UK; however, despite the decline in investment, the UK remains the epicenter of European fintech innovation, attracting more funding than France, Germany, China, India, Brazil, and Canada combined.
The largest fintech deal in Europe for 2023 was a $6.9 billion private equity raise by UK-based Finastra.
Looking ahead to the first half of 2024, investments in the UK fintech sector are anticipated to remain relatively soft, but are expected to pick up as interest rates decrease, with many believing this could happen in Q3 or Q4.
Globally, total fintech funding across mergers and acquisitions, private equity, and venture capital reached a six-year low of $113.7 billion across 4,547 deals in 2023, down from $196.6 billion across 7,515 deals in 2022. The payments sector continued to represent the largest portion of fintech funding, although it declined from $57.9 billion in 2022 to $20.7 billion in 2023.
The only subsectors to experience year-over-year investment increases were proptech, which saw a rise from $4.1 billion to $13.4 billion, and insurtech, which grew from $5.9 billion to $8.1 billion.
Karim Haji, global and UK head of financial services at KPMG, stated, “The fintech market has evolved and matured since its inception in 2004, with significant developments emerging in 2008. The technology that underlies fintech continues to transform, and we are witnessing an accelerated pace of change with the integration of AI and generative AI. We may be entering a new wave of fintech innovation. While current investment figures may be soft due to broader market conditions, the upcoming year could bring exciting advancements in the fintech landscape.”