Amid the global economic slowdown and uncertainties, the FinTech sector continues to attract significant capital, showcasing its resilience. In the first six months of 2023, global investment in FinTech reached $27.3bn across 1,711 deals. Although the value is impressive, it represents a decrease of 14% from the second half of 2022.

The UK's FinTech ecosystem, despite facing challenges, such as high inflation and cash flow constraints, demonstrates robustness with established FinTech firms leveraging innovation to capitalize on market opportunities.

Global Overview of FinTech Investment

According to a recent study by Innovative Finance, H1 2023 has underscored a broader economic slowdown. The total capital investment of $27.3 billion across 1,714 deals marks a drop of 14% from H2 2022. Factors contributing to this slowdown include recessionary trends in Europe, the US, and China, as well as high inflation leading to increased central banks' base rates.

Despite these conditions, the average deal size in the FinTech sector has been on the rise, standing at approximately $15.9 million in H1 2023, showcasing the sector’s resilience and growth potential.

"The drop in global and UK FinTech investment is an expected result of the current economic landscape," Janine Hirt, the CEO of Innovate Finance, stated. Hirt added that they remain committed to supporting the FinTech ecosystem.

Different regions are at various stages of the investment cycle. While the rest of the world saw a fall of 38% in FinTech investment, the US experienced an increase of 23% in H1 2023 compared to H2 2022. The United States remains the leading FinTech investment market with $15.6 billion invested in 663 deals. This was followed by the UK with $2.9bn invested in 199 deals. For the first time, 4 of the top 10 markets are from Asia, with China, Singapore, India, and South Korea holding prominent positions.

In addition, the trend suggests a shift towards investment in established FinTechs during the market downturn. In H1 2023, later-stage VC accounted for about 70% of the total, which is up from 54% seen in 2022.

The UK FinTech Industry Stays Strong Despite Lower Funding

In the first half of 2023, the total capital invested in UK FinTech amounted to $2.9 billion, spread across 199 deals. This figure reflects a decrease of 37% compared to the second half of 2022. Out of the 199 deals, 111 occurred in Q1, with a total investment of $2 billion. The remaining 88 deals took place in Q2, accounting for a total investment of $864 million.

Despite a decrease in the number of deals and the amount of capital invested, the UK FinTech landscape in H1 2023 is still 35% higher than the first half of 2020, pre-Covid levels. The UK remains a leading global FinTech hub , with London accounting for 91% of all capital invested into UK FinTech so far this year.

“The VC market is like any other market. Any other market sees growth, fallback and consolidation. We’ve seen possibly the most challenging environment in several decades: post-Brexit, covid interest rates, supply chain shock,” Stephen Lemon, a Partner at Volution, commented. “The economy as a whole is taking a breather and VC backed business, as they are naturally speculative, will contract a bit. Is it symptomatic of a more broad problem? No, this is where innovation happens.”

However, female-founded or co-founded companies continue to represent a small proportion of the UK FinTech landscape, indicating a crucial area for improvement. According to Innovate Finance, there were only ten female-led companies that successfully completed venture deals in the first half of 2023. These 10 deals generated a total of $62 million, ranging from Seed Series through Series C funding rounds. Unfortunately, female-driven FinTechs accounted for 2.2%, which is an extremely low percentage of venture investment in the UK during this period, compared to 4.9% in the full year of 2022.