Fintech funding in the UK remains resilient to economic shocks despite 13% decline

Despite a significant drop in the total amount secured, the UK’s fintech industry remains a top destination for start-up funding; find a new report.

Named the fintech capital of the world, the UK retains its title as one of the top fintech centers by means of start-up funding; the Tracxn The Fintech UK report suggests.

The latest analysis from the data intelligence platform provides valuable insight into the trajectory of the UK fintech funding space.

Funding from year to year

Although it received $12.9 billion in 2021, the report indicates how funding in UK fintech start-ups failed to surpass this success in 2022. The data shows a 13 percent drop in year-on-year (YoY) figures, starting -ups receiving $11.2 billion in funding last year.

The report attributes this decline to an observed 26 percent drop in late-stage funding, which fell from $9.8 billion recorded in 2021 to $7.2 billion last year. In addition, the frequency of funding rounds above $100 million also fell, falling 34 percent from 35 rounds in 2021 to 23 rounds in 2022.

However, this was also accompanied by notable increases in other areas of investment. For example, the report shows a 34 percent year-over-year increase in early-stage investments, which increased from $2.6 billion to $3.4 billion last year.

Correspondingly, the average ticket size for seed-stage investments also increased by 26 percent, while the average ticket size for early-stage financing rose by 76 percent in the same period.

Fintech resilience

The report recognizes the wider impact of world events on the fintech industry and the consequences it has on investor behaviour.

According to the findings, the first quarter of 2022 witnessed the highest level of funding ever in the UK fintech sector. Investments, however, fell only after this peak, and total funding fell 66.7 per cent between the first and second half of the year. The first six months of 2022 saw UK fintechs secure $8.4 billion, while the second half pulled in just a fraction of that figure at $2.8 billion.

The report associates this behavior with the ongoing war in Ukraine, which has ultimately increased energy costs while triggering an economic downturn as a result.

However, the report finds that funding in the UK’s fintech sector has remained somewhat resilient to these market shifts, outperforming the US, China and India.

Best performers

As well as tracking various investment behaviours, Tracxn also recognizes the UK’s best movers and shakers in the space.

By naming names, the report identifies Y Combinator, SFC Capital and Development Bank of Wales as the three primary seed-stage investors, while Squid splash Ventures, Power Above A lot and LocalGlobe still the UK’s best early stage investors.

Similarly, leading investors are late stage Sunrise Capital, Black stone and Tosca find resource Management.

As for the best funding round, the award goes to the wealth management technology company FNZwhich raised $1.4 billion from Motive Partners and Canada Pension Plan the investment board during a private equity round in February 2022.

As for the best business models for financing in 2022, the report points to these as models related to payments, investment technology, cryptocurrencies and/or banking technology.

Despite their high performance, the share of funding for the banking technology and payments sectors fell by 55.7 and 31.4 percent respectively. These noted figures are attributed to rising inflation, which limits consumers from spending on services that are not absolutely necessary.

On the other side of the coin, however, the report identifies an opposite increase in funding for the investment technology and cryptocurrency sectors, which during 2022 experienced a 206.6 and 107 percent annual increase in funding, respectively.

In Europe, the UK is currently the largest cryptocurrency market in terms of transaction value, showing that the island nation is an attractive investment opportunity for investors looking to venture into this space.

As noted in previous research, this behavior has resulted in fewer fintechs achieving unicorn status. According to Tracxn, only six fintechs achieved this feat last year, compared to the 14 that passed $1 billion the year before.

Cultivating a fintech hub

The UK government has taken steps to position the UK as a global hub as a fintech hub, and in particular as an epicenter for crypto asset technology. In this way, the country’s government has been an active participant in shaping the regulation of cryptoassets.

This includes restrictions on foreign companies selling to the UK, restrictions on the advertising of crypto products and provisions on how to deal with collapsed companies.

The report expects that the introduction of a regulatory framework in the UK will encourage investment in the sector and build confidence among consumers. In terms of total funding to date, London has attracted the maximum investment at $43 billion, followed by Edinburgh at $1.5 billion and Blyth at $731 million.