Fintech investment in the UK fell from £23.4 billion in H1 2021 to just £8.1 billion in H1 2022 – but with the whopping Refinitiv acquisition distorting the figures, things aren’t as bad as they seem.
The UK saw 262 fintech-related deals in the first half of the year, also down from the 341 deals a year earlier, according to KPMG’s regular Pulse of Fintech report. But the consultancy firm noted 2021 was an exceptional year for fintech investment around the world, leading to something of a false sense of concern around the latest numbers.
“Despite a slowdown in investment compared to last year, H1 2022’s figure remains above the H1 2020 and H1 2019 figures. Last year’s investment total was strengthened significantly by the size of many of the deals, which included the £12.5 billion Refinitiv deal in January 2021,” said KPMG UK partner John Hallsworth in a press release.
“Taking out 2021’s outlier results, such as the Refinitiv deal, the drop in UK fintech investment is not nearly as significant and is well above H1 2019’s figure of £3.2 billion. Five out of the ten largest fintech deals in H1 2022 in the EMEA region were completed in the UK,” he added.
Those five deals included the acquisition of Interactive Investor for £1.49 billion, and investments in FNZ and Checkout.com. Overall UK-based fintech investment accounted for around 37% of the value of the $26.6 billion in deals across EMEA, and 28% by number, out of the 939 deals in the first half of the year.
And while fintech M&A activity dropped considerably, EMEA VC and private equity investment remained “incredibly robust” according to KPMG, with H1 VC funding of $16.6 billion beating the $16.4 billion seen in H1 2021.
But KPMG still sees clouds on the fintech horizon, with the deterioration in global economic conditions making potential investors much pickier: “There is now a lot more emphasis on business fundamentals when making investment decisions, evaluating the sustainability of business models, how profits are generated, and whether cash is being generated or consumed for growth.”
The EMEA financial sector’s appetite for regtech remains robust, according to the report, thanks to the “ongoing avalanche of regulation”: “With inflation driving operating costs up, there is further increasing interest in affordable compliance solutions and regtech automation that can help make compliance affordable, efficient, and manageable.”
And some banks are starting to capitalise on their own internal fintech development work, by offering services such as anti-money-laundering to other financial institutions. The Pulse of Fintech report highlights Belgian bank KBC, which launched a subsidiary to offer its AI tools on a commercial basis “with the first product targeted at combating financial crime”.
According to KPMG Ireland partner Anna Scally, open banking is finally moving beyond being perceived as a “regulatory compliance programme”: “More recently though, we are seeing this capability being a key focus in how banks, powered by fintech partners, are offering new services that streamline account opening, lending and financial insights.”