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Global fintech investment slump worsens: UK suffers 'steep drop'

The slowdown in funding activity during 2024 comes after a year so bad it was described as a "bloodbath" for fintech startups.

Fintech investment has dramatically slowed down across the world again this year, with the UK suffering a particularly grim slump in funding activity.

But positive signs in the startup funding space may indicate that green shoots are emerging.

Figures released by the industry body Innovate Finance show that global fintech investment slid to $15.9 billion in H1 of 2024 - a 19% drop from $19.5 billion in the second half of 2023. There were 1,566 deals compared to 1,661 deals in H2 2023.

Overall, the US achieved the highest level of fintech investment in H1 2024: $7.3 billion across 599 deals. 

The UK was ranked second. VCs invested $2bn across 184 deals during Q1 - a "steep drop” from the $3.2bn invested in the second half of last year. There was a slight improvement in Q2 compared to Q1, but both were below every quarter of 2023.

India was in third with $837 million of funding across 78 deals, followed by China with $589 million in 30 deals and Germany with $462 million over 37 deals.

The poor investment figures are part of a longer global slowdown. Earlier this year, Shachar Bialick, founder and CEO of Curve, described 2023 as a “bloodbath” for fintech startups, who found it increasingly difficult to access the capital they needed to grow.

Has fintech investment bottomed out?

In its study, Innovate Finance warned that “the world continues to navigate choppy waters.” Even though public equity markets such as the FTSE100 and S&P 500 have soared to all-time highs so far this year, private capital raising is still “muted.”

The organisation thinks the situation has probably gotten as bad as it’s going to get, although we might have to wait until next year for a full recovery.

Janine Hirt, CEO, said: “We believe the decline in investment since the 2022 peak may have bottomed out, however the market has not yet shown that it has turned and this may not start until 2025.

“The latest investment figures show increasing global competition for fintech investment, demonstrating the ever greater need for the UK policy and regulatory environment to take action to maintain our lead in fintech and in financial services more widely. Moreover, with political uncertainty affecting investment elsewhere in the world, the UK has a window of opportunity to forge ahead.”

These apparently negative figures mask some potentially good news. Roughly 90% 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.

"As established fintechs like Starling and Monzo expand overseas, a new generation of innovative startups is emerging at the seed and Series A stages,” Innovate Finance wrote in its report. “This sets the stage for the next wave of innovators, provided the UK can continue to nurture these platforms through to scale. The relatively high volume of early-stage deals in the UK further underscores a clear call to action for the UK government to support innovation.”

Why is fintech investment slowing down?

We asked industry insiders what had gone wrong in Britain. Samantha Seaton, CEO of Moneyhub, told us that it takes too long to make an R&D claim in the UK, taking up to 22 months due to government red tape - an “eternity” for a startup and a delay that puts a dampener on investment. 

“The previous government tightened the rules,” Seaton told The Stack. “We will be looking for the new government to take this challenge on to find a way to stimulate investments. The Chancellor has talked about being fast and furious and in the fintech community. We like that, but now we need to see it being done to entice more investment into the industry.”

Naureen Zahid, Director of Investor Relations at the early stage VC OpenOcean, added: “It's clear that the UK market dynamics have been shifting, prompting a growing number of firms to consider listing in the US. There are multiple factors behind this shift. One of the most important concerns is the trading environment.

"The US offers 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 – even at earlier stages in their growth trajectory.”

Hans-Christian Zapell, who is known as Gigi to his friends, is founder of IMMO and has worked in restructuring and M&A at Morgan Stanley. 

“The UK tech landscape remains strong largely due to the exceptional entrepreneurial talent and the UK being a dynamic financial marketplace in Europe," he said. "However, the outlook for landscape has substantially worsened with Brexit playing a significant role in this decline.”

Zapell called for urgent action to address a fintech skills shortage - particularly the “post-Brexit talent gap” - by Streamlining visa processes for tech talent and providing incentives for global experts to work in the UK can also help bridge the talent gap.  Zapell also called on the build a regulatory framework that “is both supportive of innovation and aligned with international standards.”

“Diverging too far from EU regulations could complicate market access and operational logistics for tech companies,” he added.  

Innovate Finance has set out a series of recommendations which it claimed could add £328 billion of growth to the UK economy. These include “delivering the next phase of Open Banking as a priority, unlocking institutional investment in UK capital markets, implementing a joined up and tech-enabled anti-fraud strategy and specific proposals for the new Regulatory Innovation Office.”