A fork in the road: The future of UK fintech
A fork in the road: The future of UK fintech
For the majority of fintech businesses the valuation landscape has been positive, with 43% having increased, 29% remaining unchanged and 23% experiencing a decrease. Winds of change
How has the valuation of UK fintechs changed over the past year?
Fintech may be one of the most dynamic and fast-growing sectors in the UK, but it is in no way immune to the variables of global economic uncertainty. While the UK is still a global leader in attracting investment, rising interest rates and elevated inflation have had consequences, not least the tightening of capital markets. Indeed, the elevated cost of finance has likely made fintech a less attractive investment opportunity, as lenders anticipate better or safer returns elsewhere. As such, UK fintech investment in 2022 was less than half that in the previous year 3 . And our survey found that more than half (52%) of fintech firms have seen their value stagnate or decrease in the past 12 months – though we should note that 43% said the valuation of their business had increased. Downward pressure on valuations likely reflects a perception that valuations had overheated in recent years and were due a correction in line with the wider macroeconomic environment. Likewise, three in five (60%) have seen their growth trajectory slow or stay the same in the past year. One in 10 (12%) said their business was no longer growing or was in decline. The market has seen a shift in strategy since the height of the pandemic, when there was a buzz around consumer-facing fintechs. Fast forward three years and, with
consumers finding their spending power restrained amid a cost-of-living crisis, B2B models are being viewed as a more certain path to growth – particularly those that require fewer customers or utilise subscription models that provide some certainty over future income. It’s telling though that when we asked firms what had been the biggest operational or cost pressure on their business over the past six months, there was no stand-out answer. Respondents gave a broad spread of responses, reflecting the challenging conditions they are operating in. Many anticipate that the impact of input costs will recede going forward, with a quarter (25%) citing it among the biggest pressures of the past six months, but fewer than a fifth (19%) expect it to remain so in the six months ahead. However, interest rates will remain a consistent challenge, flagged by 22% as a headwind both in the last six months and for the next six months. And they don’t expect any respite from elevated energy prices – a challenge cited by 19% for the last six months and 21% for the half year ahead. While fewer firms think hiring staff will be a pressure going forward (13%) as it has been in the recent past (20%), they believe higher wage costs (18%) and challenges in retaining staff (17%) will remain.
3 https://www.finextra.com/researcharticle/270/the-future-of-fintech-in-the-uk-2023
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