Article originally appeared in CBR Online on 11th March 2016
News: What is behind the fall in investment?
UK and Ireland’s fintech investments are falling short of the hype that has predicted so much for the market.
Lauded as having the potential to revolutionise financial services, financial technology has seen the value of UK and Ireland investments grow at a much slower rate than the general tech scene.
While London may have been identified as one of the best places to live and work for tech, with many praising the strength of the capital as a global financial centre and a hub for financial technology, it would seem that the hype is not matching with reality.
Figures from Ascendant, a corporate finance advisor show that in 2015, 71 UK and Irish fintech firms received £544 million in venture/growth capital from 99 investors.
What this means is that fintech companies represented 21% of the value and 19% of the volume of the whole tech market.
Additionally it was found that although the volume of fintech deals was up 87%, the value of those investments rose by just 29% from the previous year.
Comparing this to the 76% investment for the tech market as a whole it can be seen that the deals may be plentiful but they remain small, suggesting that fintech firms are not growing at the pace they are predicted to.
Two thirds of fintech financings raised less than £2m, so while Atom Bank may have received £45m in funding in November, these are far from being the norm.
Ascendant found that although private investors are backing fintech, they are doing it at much lower levels than in the market as a whole, partly because many Series A investors have already committed to specific companies in the sector resulting in them not being particularly active.
The problem may not be isolated to just the UK and Ireland, but for Europe as a whole. A KPMG and CB Insights report, The Pulse of Fintech, found that while investment in financial technology companies around the world grew by 106% to £9.7bn in 2015, it may have passed its peak.
Deal activity fell in the final two quarters of the year and a fall from $4.7bn to $1.7bn. The report says that this drop is likely a reflection of growing caution across all areas of VC investment, rather than a concern with fintech in particular.
However, it was also found that Europe is significantly lagging behind North America and Asia in fintech funding. In 2015, VC backed fintech companies in Asia raised $4.5bn, with $7.4bn raised in the US, compared to just $1.5bn in Europe.
Despite Europe significantly trailing behind Asia and North America, the UK is the clear leader when it comes to fintech funding. British fintech start-ups raised £676.9 million and London alone accounts for £523.3 million of this. Britain’s fintech VC total is 398% bigger than that of its nearest rival Germany.
It’s not all bad news for UK-based companies then, with them accounting for six of the 10 biggest fintech fundraisers last year.
Funding Circle, a peer-to-peer business lending lead the way with £105.5 million followed by World Remit an international money transfer start-up raising £70.3 million.
The KPMG and CB Insights report added that caution is likely to continue to be a trend for the next few quarters but this is not expected to last for long, so the future may still be bright for fintech.