New research from Innovate Finance reveals that investment dropped by $417m last year
When Nutmeg, the fintech startup, raised a mighty £30m last year, chancellor Philip Hammond said the deal confirmed that Britain was the world’s fintech capital. He has a point: startups in the sector employ around 61,000 people and have demonstrated their ability to innovate time and again. However, new research has revealed that investment in fintech has slowed amidst uncertainty surrounding the UK’s journey toward Brexit. Could the country's crown be in danger of toppling?
According to Innovate Finance, the non-profit association for global fintech companies, VC investment in UK fintech startups decreased from $1.2bn in 2015 to $783m in 2016, representing a 33.7% drop. Of the deals that were made, 19% came from Europe and 18% from the US. In total, there were 173 investment deals in the UK last year.
In contrast, the future for fintech firms on a global scale seemed more positive. Across the world, VC investment in firms in the sector grew by 10.9% from $15.6bn in 2015 to $17.4bn in 2016 and there were 1,436 international deals in total. Chinese fintech firms were the big winners in 2016, with the $7.7bn that was invested in the country outpacing the $6.2bn invested in the US.
Commenting on the findings, Lawrence Wintermeyer, CEO of Innovate Finance said that the downturn in investment in UK fintech startups was “largely attributed to the uncertainty of Brexit and geopolitical [and] macroeconomic factors”. He also believes the sector has reason to be concerned about future challenges. “The loss of passporting rights will hit fintech payments firms if special provisions to the single market are not negotiated upon leaving the union,” he warned.
Wintermeyer also pointed out that while the overall results for the UK were rather bleak, investment had rebounded slightly in the third quarter. For British startups in general, investment rose by 40% in 2016 according to recent figures from Sonovate, a provider of finance to the contract recruitment industry.
The markets may remain in a state of flux for the foreseeable future but given the innovative power and resilience of British founders, we’re certain that UK startups will find ways to power through these eventful times.