Fintech Investment on the Decline
Has the decline in fintech investment bottomed out?
Global fintech investment has suffered a notable decline over the past year, with a 19 per cent decline in funding activity between H2 2023 and H1 2024. The number of deals fell from 1,661 to 1,566 across the two periods.
The poor returns are part of a wider and persistent global slowdown. High policy interest rates have made it more difficult for fintechs to access funding. In addition, geopolitical uncertainties have also reduced confidence in the market and led to investors taking a ‘risk off’ approach. Although public equity markets such as the FTSE100 and S&P 500 have soared to all-time highs so far this year, riskier private capital raising is comparatively muted.
In particular, the UK has seen a 37 per cent drop in fintech investment across the two periods, receiving $2 billion in H1 2024. Nevertheless, this figure was greater than all other European countries combined, representing a 12.7 per cent share of the global market and the second highest deal count. In addition, roughly 90 per cent of deals in the UK came in at under $20 million at Seed and Series A stages. Globally, the average deal size was $10.2 million. These numbers indicate a return to early-stage investments in the UK.
As well as macroeconomic factors, the UK’s steep decline in fintech investment can be attributed to other factors. Samantha Seaton, CEO of Moneyhub, noted that it takes a long time for fintechs to make an R&D claim in the UK, taking up to 22 months due to government red tape. In fact, the previous UK government tightened these rules, so a shift in policy from a new government could be one way in which the UK’s fintech environment becomes less treacherous and more attractive. Other jurisdictions, such as the US for example, currently offer access to a much larger pool of capital, as well as a market with far more tolerance for risk in backing new and innovative products, so structural changes may be needed in the UK if it is to compete with other markets.
Overall, the US achieved the highest level of fintech investment in H1 2024 - $7.3 billion across 599 deals.
However, there are signs that the decline in fintech investment may have bottomed out. From a macroeconomic standpoint, several major economies such as the US and UK are increasingly likely to make interest rate cuts later this year, with inflation levels having come down from their historic 2023 highs, thus providing a more fertile environment for fintechs to flourish. At the same time, a wave of new innovation is gripping the fintech space, with established fintechs such as Starling and Monzo expanding overseas, and a new generation of innovative startups at the Seed and Series A stages that are increasingly capitalising on new trends such as cryptocurrency, private equity and tokenisation.