FRP - A fork in the road - the future of UK fintech

A fork in the road: The future of UK fintech

A fork in the road: The future of UK fintech

Contrasting health in the market

An uncertain future despite growth expectations

Sadly, there have been some high-profile UK fintech failures as the funding environment has become more challenging over the past 12 months. Given wider market conditions, it seems likely that more will follow. However, despite this, and the conservative view on valuations already discussed, revenue forecasts appear more upbeat. Almost three-quarters (70%) expect to keep growing their revenues over the next year, though almost half (45%) of that group expect their growth to slow. A quarter (24%) expect to maintain their current rate of growth while just 7% expect their revenues to drop. Notably, confidence was highest among northern firms – particularly in those based in thriving fintech clusters, such as Manchester and Leeds. Some of this confidence may be derived from the industry’s ability to attract foreign direct investment; research by the City of London Corporation found fintech was the largest source of financial services overseas investment in the UK during 2022, for example 4 . With such bullish views on revenue growth, it’s perhaps surprising that almost half (48%) of those we surveyed weren’t confident in their ability to trade through the next six months – perhaps linked to their funding arrangements. Smaller firms clearly perceive themselves to be more vulnerable; just a third (36%) of

firms with one to 10 employees said they were confident that their business will be able to continue to trade through the next six months, compared with 83% of firms with 250 to 500 staff. Given this uncertain outlook among start-ups and scale-ups, it’s reassuring for consumers and the wider industry that each of the troubled firms we surveyed said that they had a wind down plan in place. However, given the Financial Conduct Authority’s (FCA) attention to firms’ shortcomings in end-of- life planning, it’s worth noting that a quarter weren’t confident that their plan would enable them to wind down in an orderly – i.e. solvent manner. The contrasting health in the market was also apparent when talking to founders and senior decision makers about their future plans. Three in every five firms (61%) polled said that they had reviewed and changed their exit strategy in the past year. It’s instructive to see that two in five said they now plan to seek consolidation (43%) – likely as a defensive measure during this period of uncertainty. That support is likely to come from the third (35%) of businesses who plan to seek acquisition opportunities. Meanwhile, two in five (41%) firms will seek new funding – aiming to fuel growth but potentially adding to their financial challenges in the long-term.




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