Is the ‘Next Wave of Fintech’ Coming?
In 2023, UK fintech investment plummeted to $12.3 billion, marking a notable 34% decline from the previous year’s $18.7 billion, as detailed in KPMG’s recent ‘Pulse of Fintech’ investment report, as highlighted in The Fintech Times. This dip, attributed to geopolitical unrest and macroeconomic uncertainties stemming from conflicts in regions like Ukraine and the Middle East, coupled with a high-interest rate environment, led investors to adopt a cautious approach, resulting in a tight liquidity situation throughout much of the year.
Despite the challenges, British fintech companies managed to secure more funding than their counterparts in France, Germany, China, India, Brazil, and Canada combined. Notably, the largest fintech deal in Europe for 2023 was a substantial $6.9 billion private equity raise by UK-based financial software provider Finastra.
John Hallsworth, client lead partner for banking and fintech at KPMG UK, acknowledged the formidable obstacles faced by the UK fintech industry in 2023. He emphasized that investors scrutinized potential deals meticulously, prioritizing the viability of business models and profitability. However, Hallsworth remains optimistic about the sector’s future, suggesting a potential upturn in investment by the end of 2024 as interest rates are anticipated to decrease, likely in the third or fourth quarter.
Globally, total fintech funding experienced a significant decline in 2023, reaching a six-year low of $113.7 billion across 4,547 deals, down from $196.6 billion across 7,515 deals in 2022. Despite this, the payments sector continued to dominate fintech funding, albeit with a notable decrease from $57.9 billion to $20.7 billion between 2022 and 2023. However, certain subsectors such as proptech and insurtech witnessed a year-over-year increase in investment, signaling resilience and potential growth areas within the fintech landscape.
Karim Haji, global and UK head of financial services at KPMG, highlighted the evolution and maturation of the fintech market since its inception, particularly emphasizing the accelerating pace of change driven by advancements in technologies like AI and generative AI. Haji anticipates the onset of a new era in fintech innovation, envisioning a promising trajectory despite the current subdued investment climate, projecting an exciting year ahead for the fintech space.