It’s no secret that challenging macroeconomic conditions and geopolitical uncertainty have increased pressures on the fintech industry around the globe. Most countries have seen levels of investment dip significantly, but are recent figures a good sign or a red herring?
In fact, the total UK fintech investment hit $7.3billion in the first half of 2024, up from $2.5billion in the same period; according to the latest KPMG Pulse of Fintech report, a bi-annual report on fintech investment trends.
However, KPMG explains that the investment total for the first six months of 2024 was inflated by the size of a number of big deals, including:
A $4billion buyout of financial software company IRIS Software Group by Leonard Green;
A $999million VC round by small business-focused marketplace platform Abound
A $621 million raise by neobank Monzo
Taking these outlier results out of the equation, the figures paint a less than comforting picture for UK fintech firms. In fact, without these, UK fintech investment fell to $1.8billion in the first half of 2024.
Other statistics also suggest an overall downturn, as only 198 UK M&A, PE and VC fintech deals were completed in H1 2024, down from 284 in H1 2023. Despite a fall in the total number of deals, KPMG reminds us that British fintechs attracted more funding than their counterparts in the rest of Europe, Middle East and Africa (EMEA) combined – still making the UK the centre of European fintech investment.
Karim Haji, UK and global head of financial services at KPMG, discussed the findings: “The high cost of capital and geopolitical uncertainty – linked to conflict and elections, have put a significant damper on all global investments so far this year, and the fintech market isn’t immune to that.
“Investors are acting cautiously, and not only when it comes to large transactions. On the M&A front, in particular, given concerns about valuations and the profitability of potential targets, investors are focussed on improving the companies they already own rather than buying new.”
Is the UK still heading for an investment increase?
Overall, the EMEA region saw total fintech investment drop considerably in the first half of 2024, falling from $19.1billion in H2 2023 to $11.4billion in H1 2024.
The largest EMEA deals outside of the UK included the buyout of payments firm Banco BPM Gruppo for $652million, and the acquisition of Switzerland-based e-invoicing company Pagero by Thomson Reuters.
Hannah Dobson, partner and UK head of fintech at KPMG UK, also said: “With the new UK government in situ and the potential long-awaited drop in interest rates having finally arrived, there are hopes that fintech investment will start to show signs of recovery as we move into the latter part of the year and early 2025.
“We are expecting to see growing investment interest in AI and its use in the fintech and regtech space. Regulation remains a key focus in the EU – particularly with crypto and digital asset businesses as they navigate the new EU’s Markets in Crypto Assets (MiCA) regulation, which is expected to arrive in December 2024.”
KPMG also revealed that between H2 2023 and H1 2024, total investment fell from $35billion to $27.4billion.
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