Tracxn, a leading global SaaS-based market intelligence platform, has released its Geo Quarterly Report: FinTech UK - Q3 2023. The report, based on Tracxn’s extensive database, provides insights into the UK FinTech space.
The UK FinTech startup ecosystem ranks third in terms of overall funding, after the US and China. More than 12,000 companies in the UK operate in the FinTech space, accounting for almost 10% of the total FinTech companies in the globe. FinTech has been one of the top-performing sectors in the country, based on funding activity as well as the number of companies found in this region.
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The UK has the second-highest number of unicorns in this space, next to the US. Further, London has the third-highest number of FinTech Unicorns in the world.
The UK has been one of the major regions for FinTech companies, with its leading talent pool, higher FinTech adoption rate, higher concentration of financial and professional services firms and forward-thinking regulations. Despite these advantages, the space has witnessed a downward trend in funding in 2023, due to the current macroeconomic environment, rising interest rates, inflation and the increase in gas prices in this region.
The UK FinTech startup ecosystem witnessed its highest funding in Q1 2022, after which the funding started to decline. 2023 has been the least funded year since 2019, based on the funds raised in the first three quarters of the year. Q3 2023 has become the least funded quarter in the last six years since 2017. The UK has ranked fifth in terms of funding raised in Q3 2023 and ranks second in terms of overall funding raised in 2023 YTD.
In Q3 2023, the UK FinTech space witnessed total funding of $279.1 million, which is a 79% drop compared with $1.3 billion raised in Q2 2023 and a 77% decline from $1.2 billion in Q3 2022. This drop in funding is largely due to the decline in late-stage and early-stage investments.
Late-stage funding worth $147 million was observed in the third quarter of 2023, an 81% fall compared to $777 million raised in the previous quarter (Q2 2023) and a plummet of 83% compared to $871 million raised in Q3 2022.
Early-stage investments in Q3 2023 stood at $82 million, a drop of 81% from $441 million raised in Q2 2023, and also a decline of 65% compared with $235 million in Q3 2022. Seed-stage funding in Q3 2023 also fell to $50.4 million, a 46% drop from $93 million raised in Q2 2023 and also a 20% drop as against $63 million in Q3 2022.
None of the companies in this sector raised a $100M+ round in the third quarter of the year. Further, there were no new entrants to the Unicorn club in Q3 2023, as against one new Unicorn in the corresponding quarter last year.
There has also been no activity in terms of IPOs since none of the companies in the FinTech space have gone public in 2023 so far. However, 13 acquisitions were observed in the UK FinTech space in Q3 2023, lower than 17 each in Q2 2023 and Q3 2022.
Payments, Insurance IT and Digital Remittance were the top-performing segments in the FinTech sector in Q3 2023. The Payments segment accounted for almost 33.8% of the total funding received in the UK Fintech space in Q3 2023, with a total funding amount of $106 million.
Cryptocurrencies and RegTech were the most affected segments in Q3 2023. Funding in the Cryptocurrencies segment has dropped by 97% from $580 million in Q2 2023 to $20.2 million in Q3 2023.
In terms of city-wise funding, the majority of the funding (81%) was raised by FinTech companies based in London, which raised $227 million in Q3 2023.
Seedcamp, Techstars and Anthemis Group are the most active investors in this space. January Ventures, QVentures and Force Over Mass emerged as the top seed-stage investors in Q3 2023, while Atempo Growth, Susquehanna Growth Equity and Finch Capital were the top early-stage investors. SoftBank Vision Fund was the top late-stage investor in Q3 2023.
In response to this downward trend in investments, the UK government has taken a number of measures to support the startups. The UK government has launched the Fintech Growth Fund, which will allocate $1.27 billion to support growth-stage companies. The government has launched the "FinTech for Gov" initiative to promote fintech innovation in the public sector by fostering awareness, facilitating opportunities, and building partnerships between public and private entities
Moreover, a national hub for FinTech excellence has been established to support the sector's growth by offering access to investors, mentors, and resources, which will enhance their competitiveness on a global scale.
