Innovate Finance, the independent industry body for UK fintech has released its ‘FinTech Investment Landscape 2023’ report. It identified that global fintech investment dropped by 48 per cent in 2023 when compared to 2022. Despite this downward trend, a panel hosted by Innovate Finance explored why 2024 would be different for fintech, focusing particularly on the UK.
Jointly hosted with the City of London Corporation, Innovate Finance moderated a panel discussing capital raises and investments in 2023, challenges and opportunities, current investment trends and what to expect in UK fintech throughout 2024.
Contributing their views on the panel were Simi Shah, project director of innovation and growth at City of London Corporation, Shachar Bialick, founder and CEO of Curve, Tim Levene, partner and CEO of Augmentum FinTech, Andrew Murray, head of institutional strategic investments at Citi. Janine Hirt, CEO of Innovate Finance moderated the panel.
The state of UK fintech
With a multitude of economic issues facing different countries across the world, it is no surprise that investment levels have not been able to match those of 2020, 2021 and 2022. According to the Innovate Finance FinTech Investment Landscape 2023 report, global fintech investment dropped by a steep 48 per cent in 2023 compared to the previous year. Expanding on this during the panel session, Janine Hirt said there was a total of “$51billion in global fintech investment in 2023.”
Looking specifically at the state of UK fintech Hirt said: “The UK retains its position as second in the world behind only the United States, with $5.1billion fintech investment coming in in 2023. Although this was down on 2022 by around 65 per cent, most of the top global fintechs around the world also had a drop of around 60 to 65 per cent.”
She continued: “There is more money pouring into the UK fintech sector than pre-covid and pre-pandemic levels. So there is an argument to be made around the maturation of the sector.”
According to the report, the UK vastly outpaced the third-highest country, India, in fintech investment as it received over double the funds in 2023. India only brought in $2.5billion across 187 deals, while the UK reported $5.1billion across 409 deals. Interestingly, the second largest deal made in 2023 was based in the UK as paytech, Rapyd, brought in $950million.
Nonetheless, the large drop in fintech investment caused many to struggle last year. Bialick said: “Raising in 2023 was a bloodbath… Many CEOs and founders found themselves needing to change their cultures and mindsets to operate and grow.”
Who were the benefactors?
Having established the general state of UK fintech investment, the panel turned to discussing the companies that thrived the most in 2023. Levene noted that there was one overarching theme that firms had cottoned on to in order to be successful in the past year: talent. “Every VC firm that we see is really looking hard at the talent, the capability and the underlying proposition.”
He also pointed out that while investors need to do their due diligence on potential investments, the companies must likewise do the same for investors. “It’s absolutely critical because the valuation doesn’t really matter today. It matters when you exit.”
Murray shared a similar sentiment calling it a “red flag” if there’s only a focus on valuation versus what the business needs.
Looking at 2024 and beyond
The following topic of discussion was on future trends and predictions for 2024. Levene established very clearly that “there won’t be a single moment in time that we can suddenly say the market has reset. It just doesn’t work that way.” However, the conversation that followed seemed very optimistic. Bialick added that mergers and acquisitions (M&As) in 2024 were likely to rack up.
The sentiment was shared by Steve Lemon, partner at Volution VC, who commented in the Innovate Finance saying: “For UK and US Fintechs, the vigorous expansion in these regions presents significant opportunities, for example, through partnerships or direct investments, bringing expertise in regulatory technology, analytics, and cross-border payments to regions eager for innovation and international collaboration.”
As the discussion continued to unfold and the panellists gave their views, Levene added: “I think we will see less CVC action, but we will see more strategic M&A from those corporates that have recognised that the digital transformation journey has been extraordinarily painful, expensive and not necessarily always effective.”
Political impacts
With the US Presidential election taking place later this year, the panel spoke about the impact political moves could have on global fintech and, in turn, the UK market. The panellists made similarities to Brexit, with an agreement being that whatever happened politically, the fintech sector would be resilient in the face of adversity.
The conversation moved on to hot topics throughout 2024, in which the impact of AI on investment was discussed before the audience was able to ask questions to the panel. Ensuring company loyalty when tough decisions must be made, and regulations were the two standout talking points.
The panel concluded with every panellist confidently agreeing that 2024 would be a turnaround year for fintech investment, with all believing the UK would raise more than $5.1billion this coming year.
