A combination of geopolitical uncertainty, high inflation, and low interest rates has led to a significant decline in investment within the UK’s fintech industry, reaching its lowest level since 2020.
In 2024, UK fintechs attracted £7.97 billion, a decrease from the £10.95 billion invested in the previous year, as reported by KPMG’s Pulse of Fintech report. Despite this downturn, the UK continued to excel in fintech funding, surpassing France, Germany, China, India, Brazil, and Canada combined, accounting for nearly half of all fintech investment in the EMEA region.
The largest deal in the UK for the year was a £215 million venture funding round from money transfer provider Zepz in the second half of 2024. The KPMG report characterized 2024 as a “challenging year” for both the EMEA region and the UK, with total investment in EMEA plummeting from £21.5 billion in 2023 to £16.3 billion. The second half of 2024 experienced a nearly 50% decline in funding, dropping from £10.5 billion to £5.8 billion.
Hannah Dobson, UK fintech lead and partner, indicated that there are signs of a “slow recovery in deals” due to falling interest rates and the possibility of greater political stability. However, this optimism must be balanced against ongoing regulatory challenges, particularly regarding AI use, the BNPL market, and the crypto sector, with the EU’s AI Act and Markets in Crypto Assets (MiCA) Act coming into effect in the latter half of 2024.
Despite the reduction in investment, the UK retained its position as the hub of European fintech in 2024, capturing almost half of the entire funding within the EMEA region. Dobson anticipates that UK investment will remain subdued during the first half of the year but is likely to pick up in the third or fourth quarter as interest rates continue to decline.
In contrast to trends in the majority of the EMEA region, fintech investment in the Middle East nearly doubled, increasing from £0.9 billion to £1.7 billion in 2024. The report also predicts a rise in the number of secondary transactions as fintech firms achieve profitability, driven by challenges in capital markets and the desire of many investors to liquidate positions.
In terms of sectors, payments continued to dominate investment, with global funding in this area rising to £25 billion in 2024, up from £13.8 billion in 2023. Karim Haji, global and UK head of financial services, noted that payments remained the standout performer among fintech subsectors, fueled by late-stage deals and increasing consolidation. As interest rates decline in various jurisdictions and funding costs decrease, the outlook for fintechs globally appears more promising.