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The UK fintech sector saw a steep drop in investment last year, but was still a top-three global destination for capital.
Investment in UK fintech from private equity and venture capitalist firms fell 56% in 2022, reaching $17.4bn compared with $39bn the previous year, according to KPMG.
In its latest Pulse of fintech report, KPMG said investments in the second half of 2022 were much lower than the first six months as “higher interest rates and inflation alongside downward pressure on valuations dampened investor appetite.”
There were 593 private equity and venture capital fintech deals in the UK in 2022, compared with 724 in the year before.
Despite the falling investments, KPMG’s UK head of financial services, Karim Haji, said it was a strong year for the UK fintech industry. “The UK is a major global player, with investment in UK fintech only behind that of the US and Australia,” he said.
Investment with UK fintechs attracted more funding than those in the rest of Europe combined.
Haji said 2022 was “a tale of two halves” with significantly more investment and deals in the first half of 2022 than the second half. “The variance highlights the shift in investor sentiment in the face of increasing geopolictical challenges.”
Read more about the fintech sector
- Investment in UK fintech firms increased by 24% to $9.1bn in the first half of 2022, compared with the same period in 2021.
- UK fintech sector attracted the most investment ever in 2021, following a slowdown in 2020.
- Innovate Finance reveals decrease in UK fintech investment, but report methodology leaves this open to change.
A total of $11.8bn investment was received in the UK during the first half of the year, with 365 deals, compared with $5.6bn investment and 228 deals in the second half.
Global investment in fintech last year, including mergers and acquisitions, private equity and venture capital was $164bn, compared with $239bn in 2021, which was a record. There were just over 6,000 deals last year globally, compared with more than 7,300 in 2021.
Anton Ruddenklau, global fintech leader at KPMG International, said: “We’re seeing an incredible amount of interest in all manner of fintech companies, with record funding in areas such as blockchain and crypto, cyber security, and wealthtech. While payments remains a significant driver of fintech activity globally, the sector is broadening every day.”
The fintech sector, which has attracted huge investments over the past few years, is currently cutting back amid challenging market conditions.
Fintech giant PayPal has said it will cut 2,000 jobs – about 7% of staff – as it expects the current challenging economic conditions to continue.
Earlier US fintech firm LendingClub also announced cuts, with 14% of its workforce set to go as high interest rates stifle demand for its lending services. Meanwhile, UK payments infrastructure financial technology firm Paddle is reducing its workforce of more than 350 by 8% as a boost to its business during the Covid-19 pandemic comes to an end.
The UK fintech sector was recently backed by the government as a future growth industry. In a recent statement about the UK fintech sector, Paul Scully, digital economy minister, said: “Despite global headwinds, British fintech firms showed great resilience last year, and helped boost the UK’s status as a world leader in tech – delivering jobs and huge benefits for our economy.
“In 2023, we are focusing on maintaining that lead by supporting startups, boosting digital skills and making this country an even more attractive destination to found, grow and invest in tech businesses.”