Optimism for UK Fintech in 2023 despite 30% global investment decline

Despite a challenging global market, the UK standsis emerging as a top destination for fintech investment, a new report has revealed. But the investment gap between the sexes is increasing.

To show it off 2022 Investment Landscape Report, industry body Innovative finance organized a panel discussion and Q&A at London’s Guildhall in association with City of London Corporation.

The ‘Capital Investment in UK FinTech in 2022: Insights and Trends’ session served up industry musings from fintechs and investors on their capital raising and investment in 2022. They revealed their challenges as well as opportunities, current investment trends and what to expect in 2023.

Global view

After a record year in fintech investment in 2021, last year there was a global drop in investment. Globally, fintech attracted $92 billion in venture capital (VC) in 2022, a noticeable decrease from the $130 billion invested in the sector in 2021.

Venture funds deployed $23.3 billion to earlier-stage global fintech, compared to $31.5 billion in 2021, and $50.5 billion to late-stage, compared to $82.4 billion in 2021.

However, seed investment rounds performed better than expected, raising $7.5 billion in 2022, a big increase compared to the $5.8 billion raised in 2021. Growth and expansion private equity deals in 2022 attracted $10.7 billion dollars, corresponding to 2021.

UK performance

The UK received $12.5 billion in fintech VC investment, of which $8.9 billion was invested in the first six months of 2022 alone. This is down eight percent on 2021 investment, but still cements the UK’s second position in the global ranking, the closest. challenging the US and surpassing India in third place.

Female investment

In 2021, female-founded and female-owned fintechs represented nine percent of all fintech VC activity in the UK. Unfortunately by 2022 this investment plummeted to $616m across 39 deals, representing just 4.9 per cent of total UK fintech investment.

“There are huge opportunities beyond the areas where we have seen a lot of fintech funding already going in”

Views for 2023

Tim Levene, CEO, Augmentum FinTechtook a “glass half full view” and predicted that the first half of this year will be weaker, but with a pickup in the second half of this year.

“There is still a significant amount of dry powder in the European venture capital ecosystem. We cannot confuse dry powder with drawn down capital because it is committed capital where much of it is not drawn down.

“But at the end of the day, investors have to invest and can’t sit on their hands forever. It’s a real incentive, but there’s a lot of waiting to see how the economy plays out and how growth plays out especially over the next 12 months. So I think investors are looking internally, but fundamentally high-quality fintech companies are going to be funded and there is absolutely no doubt that the capital base is there for sure, but will be distributed over a longer period and valuations will be more moderated.”

Kevin Chong, co-founder of Outbound VCremains largely “secured” by the figures in the Innovate Finance report, but agrees that the decline will continue in the first half of 2023.

“The numbers are very reassuring given how challenging it was last year and compared to other regions. Investors are still taking a wait-and-see approach, trying to figure out where the valuation levels are and what areas to focus on, and I don’t expect any big improvements in the first half of the year.

“For the second half, I’m much more optimistic assuming we don’t get any more geopolitical shocks.”

Important verticals

Ax Ali, cohabitant, EY, suggests that there are areas within fintech where innovation is still in its infancy, for example insurtech and wealthtech.

He said: “There are pockets of maturation in fintech, but there are areas of white space that are yet to be explored. Insurtech has seen funding grow by 70 per cent and wealth technology funding is up 110 per cent. These are still industries that are not being disrupted by the use of fintechs both in the B2B proposition and on the B2C side.”

“So I think there are huge opportunities beyond the areas where we’ve already seen a lot of fintech funding.”

Problem with diversity

Janine Hirt, CEO of Innovate Finance, says: “Our figures around investment into female-founded or female-led fintechs in the UK are quite dismal. It’s clearly something we need to do, not just when it comes to gender diversity, but much broader diversity, whether it’s racial diversity, LGBTQIA+, neurodiversity, or even socioeconomic diversity.”

Chong commented: “I think it all starts with tracking and reporting and hopefully we can do more of that. If you don’t track you don’t know if you’re increasing, so I think right now there’s a big lack of data. We know there’s a problem, but it’s actually very hard to quantify because there’s just not enough data about it at a granular level.”

The Fintech Times’ important things from today’s session

• 2021 activity should be removed from all statistics
• In 2022, many venture capitalists lost their heads and lost sight of fundamentals
• In 2023, hot sectors and trends should be approached with caution
• 2023 will be slow to deploy capital, but will improve in Q3
• 2023 will give the private markets a “healthy correction”

Fintech Week London has launched an Industry Review to address explosive growth and rapid decline in funding and valuations, led by Susanne Chishti.

Register to participate and/or follow the conversations.