British fintechs are becoming concerned about the current investment landscape, according to a report by Fintech Connect, though figures from other sources suggest funding has risen.
According to Fintech Connect’s survey, 72% of fintechs are looking for investment but a quarter have been unable to secure any, leading to changes in funding plans over the past year.
A further 44% of fintechs reported being ‘somewhat concerned’ about how fintech company valuations have been changing over the past 12 months, and a quarter are ‘extremely concerned’ about this.
LIke other UK business sectors, fintech is heavily dominated by SMEs and startups, for whom securing investment is key to further growth and scaling. It can also be a highly competitive environment, with various companies looking to attract investment from major financial institutions and hedge funds.
Laurence Coldicott, Senior Content Director at Fintech Connect, said: “With 72% of fintechs actively seeking investment, it’s clear that funding remains a top priority across the sector. However, our research reveals that a significant portion has had to alter their investment strategies due to challenges in securing funding over the past year.
“These findings underscore the pressures on fintechs to not only attract capital but to navigate an increasingly selective investment landscape, and it’s telling that almost half (48%) believe private equity provides the most investment opportunities within the fintech space.”
Fintech Connect’s findings are interesting as it suggests that UK fintechs are struggling to access funding despite the country’s fintech landscape seeing increased investment over the past year.
KPMG, one of the ‘big four’ accounting organisations, reported a 192% year-over-year increase in fintech investment in H1 2024 to $7.3bn (H1 2023: $2.5bn). Though this still marked a drop on $9.6bn in H1 2022, itself a decline from 2021, KPMG’s latest figures do suggest that the investment environment is improving.
The fintechs surveyed by Fintech Connect also suggest that the sector remains optimistic, with 70% projecting ‘steady growth’ in investment over the next three-to-five years and 67% having a ‘positive overall sentiment’ towards the sector’s current standing.
A factor that remains a headache, however, is regulation. The Payments Systems Regulator’s (PSR) new rules around authorised push payment (APP) fraud reimbursement introduced in October have been a cause for concern for UK payments for some time, and APP fraud has been cited as a key area of regulatory worry in Fintech Connect’s research.
Other areas include general AML and KYC regulation and the impact of the Digital Operational Resilience Act (DORA), the EU’s cyber security regulation. Though the UK is no longer an EU member, the close links between the two means EU rules around financial services still have an impact on the country.
“The research has highlighted growing unease among fintechs and investors about the evolving regulatory landscape,” Lawrence remarked.
“Legislation like AML/KYC requirements, aimed at curbing financial crime, and DORA’s stringent digital resilience standards, add significant operational and compliance burdens to emerging fintech firms.
“Meanwhile, the escalating risks associated with APP fraud amplify the need for robust anti-fraud measures, which can divert resources from growth initiatives. For fintechs and their investors, the challenge lies in striking a balance between compliance and innovation in an environment where regulatory pressures will only increase.”
