The UK’s fintech sector is facing an uncertain future, with almost half of firms indicating potential risks of failure by the end of 2023. This insight comes from new research conducted by business advisory firm FRP.
In a survey of over 250 UK fintech companies, FRP discovered that 48% of businesses lack confidence in their ability to operate over the next six months due to ongoing challenges related to inflation and interest rates.
The research highlighted a heightened risk for smaller firms, with 52% expressing concerns about insolvency. Even among more established fintechs, the anxiety is palpable, with 38% of businesses employing at least 50 staff members acknowledging potential risks.
As interest rates rise, 41% of firms have reported increased difficulty in securing funding over the past year, while a similar percentage (43%) experienced improved access to finance.
Most of the surveyed business leaders stated they have reviewed and adjusted their exit strategies in the last year. The most common approach has been seeking consolidation, while a notable 35% are actively pursuing new acquisitions, indicating a possible uptick in mergers and acquisitions activity.
Firms in regional fintech hubs, such as the Midlands (58%) and the North East (56%), appear most at risk, whereas companies in cities like Manchester and Leeds (42%) show greater confidence in their financial stability. The proportion of London firms concerned about trading viability in the coming months (46%) is consistent with the national average.
Dan Conway, partner and restructuring specialist at FRP, remarked, “The UK’s fintech sector remains internationally renowned. However, like all innovative industries, it depends on investor support for early-stage growth as new products and technologies establish themselves. Rising interest rates and broader economic challenges pose significant obstacles, compelling funders to be more selective in their investment choices, especially with other sectors presenting potentially lower risks.”
He added, “For those seeking consolidation, the upcoming months are vital for optimizing commercial operations and future profitability, ultimately creating the most appealing proposition for potential investors or acquirers.”