According to KPMG’s Pulse of Fintech H1 ‘23 report, UK fintech investment fell to £4.6bn in the first half of this year. Standing at £10.8bn in H1 2022, this represents a drop of 57%: but why is this happening, and what does it mean for the UK fintech sector?
The factors behind the fall
KPMG suggest that the drop in UK fintech investment is a result of multiple factors. These include the Russia-Ukraine conflict, ever-increasing interest rates, high levels of inflation and challenges faced by the tech sector. In addition, they say that the collapse of a number of US banks (as we described here) has left investors sitting and waiting to see what happens in the UK’s financial sector.
It’s not just the UK that has suffered. Across the entire EMEA region, total fintech funding fell from $27bn in H2 2022 to $11bn in H1 2023 for similar reasons. But what are the sector’s prospects for the future?
The future of UK fintech investment
Despite the fall in fintech investment, the UK remains among the most important fintech players in the EMEA region. KPMG’s report shows that the UK brought in half of the 10 largest EMEA deals in H1 2023 – and new developments could encourage future growth.
The Financial Services and Markets Act 2023, which was passed in late June, aims “to grow the economy and create an open, sustainable and technologically advanced financial services sector”. The Act has been drawn up to facilitate new fintech testing, to begin to regulate crypto assets and to encourage financial services companies to see the UK as an attractive place to IPO.
KPMG also highlight trends to look out for over the rest of the year – including the increased use of AI and intelligent automation, PSD3-driven embedded finance and banks partnering with fintechs on a more regular basis. These, they say, will help to strengthen the UK’s competitiveness and leadership in the fintech space.
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