Tracxn Launches Its Geographical Quarterly Fintech UK Report – Q1 2023: UK Fintech Startups Raise $595m in Q1 2023, 89% Down from Q1 2022
Tracxn, a leading global SaaS-based market intelligence platform, has released its Geo Quarterly FinTech UK Report – Q1 2023. The report, based on Tracxn’s extensive database, provides insight into the UK FinTech space.
The UK has been one of the most FinTech-friendly nations, leveraging its favorable time zone, better infrastructure and policy support, and globally recognized regulatory practices. The country has the highest FinTech adoption rate of 71%, compared to the global average of 64%, and has the second highest number of FinTech startups, next to the US.
UK FinTech startups experienced their highest funding in Q1 of 2022, after which funding began to decline. This drop is mainly due to the ongoing war between Russia and Ukraine, which increased oil and energy prices rapidly. This in turn induced a higher inflation rate and high cost of living for British citizens. Q1 of 2023 is the least funded quarter in the last three years (since 2020).
In Q1 2023, UK FinTech startups raised a total of $595 million, a 65% drop from total funding of $1.7 billion in Q4 2022. This is also 89% lower than funding of $5.5 billion registered in Q1 2022. Stage financing was most affected in Q1 2023, falling by 95% and 63% respectively compared to Q1 2022 and Q4 2022. In the first quarter of this year, companies in the FinTech area attracted investments late-stage worth $197 million, compared to $4.2 billion in Q1 2022 and $533 million in Q4 2022.
Startups in this space recorded early-stage investments worth $315 million in Q1 2023, down 69% and 71% from Q4 2022 and Q1 2022, respectively. Seed-stage funding witnessed a marginal drop of 5 % from Q4 2022 after raising $83.6 million in funding in Q1 2023. The highest funding in Q1 2023 was observed in February, but it is still 83% lower than February 2022, which was the highest funding month in the past the decade.
Alternative lending, banking technology and digital insurance were the best segments in the first three months of 2023. Companies in the alternative lending segment attracted the maximum investments in the first quarter of 2023, 28% higher than in the fourth quarter of 2022. However, this is still 77% lower compared to the amount collected in the 1st quarter of 2022.
Among UK cities, FinTech companies in London raised the most funding this quarter ($481 million), followed by Alfold ($40 million) and Cardiff ($30 million). Seedcamp, Accel and Anthemis Group are the most active investors in the UK FinTech space.
No new unicorns emerged and no IPOs took place in the first three months of this year, similar to the previous quarter. However, there was a slight increase in terms of the number of acquisitions, with 26 acquisitions in the 1st quarter of 2023, compared to 24 in the 1st quarter of 2022 and 22 in the 4th quarter of 2022.
No funding round reached $100 million in the UK FinTech space in the first quarter of this year. Neobanking startup Zopa raised $92.5 million, making it the largest amount raised in the sector during this period.
In response to this downward trend in investment, the UK government has taken a number of measures to support start-ups. In February 2023, the government launched a national hub for FinTech, which is expected to focus on early-stage startups. Furthermore, tax support for research-intensive startups was also introduced in the UK’s spring budget. These measures are expected to support and encourage startups to develop better technologies or better problem-solving ideas to sustain their business.
