UK fintech investment fuels cautious optimism

0
10
UK fintech investment fuels cautious optimism

Investment in the British fintech sector dropped by over a third in the first half of 2020 amid global economic shutdowns, but nearly two billion US dollars were still invested into the sector, driving cautious optimism amongst analysts.

Data released on Monday by Innovate Finance, the UK fintech industry body, showed that in the year to June 2020, venture capital investment in the fintech sector totalled $1.84 billion over 167 deals, compared to $3 billion invested into 263 startups in the first half of 2019, representing a thirty-nine per cent drop in capital.

However, the figure for the first six months of 2020 is up from the previous half-year period (H2 2019), even in spite of the global health crisis.  Funding in the last six months of 2019 totalled $1.5 billion, or seventy-nine per cent of H1 2020’s levels.

Over half of the investment went to five companies, with forty-seven per cent comprising “mega-deals” of over $100 million, underlining the ongoing maturity of UK fintech, one of Britain’s best performing sectors in recent years.  The sector is increasingly attracting investment as it grows and scales upwards.

The four biggest mega-deals of 2020 were completed by Revolut, Checkout.com, Starling Bank and Onfido, with the fifth biggest deal coming from Thought Machine, that received $83 million.

A fifth of funding went to companies receiving between $5-$20 million, with thirty-five firms together raising over $376 million. The smaller investments ($0-5m) were made to eighty-seven companies, representing eight per cent of the total investment.

Husayn Kassai, CEO and co-founder of Onfido, suggested that the pandemic has increased demand for the type of digital services offered by fintechs: “The proliferation of digitisation started well before Covid-19 but it has since accelerated even further.  Most infrastructure companies that support the digital transition, such as online communications, payments, identity and so on, have seen three years of transition happening within three months.  We feel fortunate that we can help our partners transition into the new normal.”

Innovate Finance said global interest in fintech remains high, with the crisis failing to halt investor appetite.  They reason that, with digital adoption of financial services quickening as a result of the Covid-19 pandemic, the industry has come to the fore as an alternative solution to the financial difficulties faced by individuals and businesses alike.

“It’s encouraging to see investors are still backing [fintech companies], particularly those which are accelerating the digitalisation of society,” said Charlotte Crosswell, CEO of Innovate Finance.  “But we need to highlight the significant drop in the amount of capital raised during the first half of the year.  This is particularly impacting start-ups, with a recent survey showing that seventy-five per cent of smaller fintech firms are concerned about their next funding round.

“Whilst early stage conversations suggest capital is ready and waiting to be invested, there is still a lag in actual funding.  It is yet to be seen if the rest of 2020 sees a pick-up in activity, but in the meantime, we must help fintechs of all sizes source the capital they need to emerge from the pandemic, if our sector is to grow during the crisis.”

Commenting on the data, Jay Wilson, investment manager at Albion VC, said: “Anecdotally it very much feels we are back firing on all cylinders, deal activity at all stages of the funnel is happening.  From my conversations with other investors I understand this is true for my peers too.  To that extent Q2 2020 might get chalked up as a pause rather than a long-term inflection point in fintech funding activity.”

Innovate Finance said that the sector has the potential to “transform the UK economy and boost financial wellbeing” as the country emerges from lockdown, with the focus for the second half of 2020 being on investors bridging the funding gap.

27th July 2020.