UK fintech outperforms global sector amidst sharp funding decline

The latest figures from Innovate Finance show that investment in the UK fintech sector has experienced a surprising 24% growth to $9.1bn in the first half of the year, when compared to the same period in 2021. The only nation to receive more fintech investment than the UK – raising $25bn in capital in the first half of the year – was the US. This comes amidst trends of high-growth tech firms swerving a London IPO in favour of listing on the New York Stock Exchange.

In stark contrast to this year, UK fintech investment was up by 207% in 2021 – reaching $11.6bn – compared with 2020. Now, the London Stock Exchange (LSE) is backing a new review looking into the rise and fall in funding and valuations in the fintech industry over the last few years. Worldwide inflation and a looming economic recession have resulted in a reduction of IPOs and a stock market rout, making it harder for firms across the UK to raise funds.

New research from leading investment banking platform, JPIN, also highlights that it is not just retreating investors that are affecting the sector, with 26% of the UK workforce citing alack of tech talent as another key factor holding back business growth. Whilst the “ground-breaking’ review aims to address the issues permeating the fintech industry, Nayan Gala, industry expert and founder of JPIN, explains that firms must – and are already beginning to – look beyond the borders Britain.

Some of the world’s most influential emerging markets could be key in providing pockets of capital to ultimately help and transform the UK’s flailing fintech sector in a post-Brexit world. The United Nations Conference on Trade and Development’s 2022 World Investment Report has revealed that flows of Foreign Direct Investment (FDI) to developing economies rose by 30% – the highest level ever recorded – largely due to contributions from Asia.

The fintech sector in these developing economies is likely to have seen a transformation due to this boost in global investment. For instance, Nigeria’s fintech sector has experienced rapid transformation in the last decade after attracting pools of funding from the US and Asia. This resulted in the country experiencing a record year in 2021 with a total of over $1.6bn invested in the country – a third of which came from US -based VC firms. Thriving private wealth vehicles of countries further afield are likely to help fuel Britain’s fintech sector, giving it a much-needed injection of capital to generate innovation that could take the country back to its glory days.

A few of Britain’s largest and most well-known conglomerates have already begun looking East to receive funding and boost growth with Reliance Industries recently announcing a franchise partnership with Pret A Manger to launch and build the British chain across India. This partnership demonstrates a key milestone between the India and UK corridor, highlighting the significance of establishing a strategic relationship with the nation. Whilst FDI inflows heavily declined in 2021, outward FDI from India rose 43% to $15.5bn in the same year. The country has continued to break records in business activity in the past year alone as earlier this month it reported $82.3bn in mergers and acquisitions in the last quarter, despite global volume being down 8.7% – according to Bloomberg.

Nayan Gala, founder of JPIN, explains why Britain’s fintech sector should embrace international funding opportunities:

“Looking further afield for funding opportunities is becoming increasingly important, especially given what the global market has been through over the last two years. Trends of international investment are already here and prove vital in providing opportunities to scale up. Pret A Manger’s expansion to India is a great example of this, and I expect to see many companies in the fintech sector also looking to both expand and source investment from Asian countries in the next few years.

“With the pandemic and general economic uncertainty having created a unique and arguably challenging landscape Britain’s fintech sector, India presents itself as a key driver in providing a sufficient means of capital for firms looking for opportunities to scale up.

“India’s record-breaking quarter for M&A activity clearly illustrates the country’s wealth in investment opportunities. As one of the leading hubs of IT and technology, I expect to see an increasing number of startups turning East in search of funding opportunities that can assist with their scale-up efforts in such a bleak socio-economic landscape.”