Industry insiders have hailed the UK government’s announcement of a national hub for fintech as a “small step in the right direction” for the sector, following a worrying decline in global fintech investment in 2022.
The Centre for Finance, Innovation and Technology (CFIT) was officially launched, at an event in Leeds on the 28th February, to help drive the sector forward in the UK following a stark decline in funding throughout 2022.
The UK national fintech hub is also being supported by £5.5m of Treasury and City of London Corporation funding.
“I think it’s a small step in the right direction,” Daniel Harman, co-founder of Darksquare Capital, told Verdict.
“The UK is still the leading country in Europe for fintech investment with $12.5bn invested in the sector in 2022 compared to $2.9bn in Germany and $2.8bn in France.
“But I think it’s important to bear in mind that a lot of that investment volume would have been into more mature companies that were founded in the UK before Brexit, so there will be a ‘lag’ of a few years before we see the real effects leaving the EU has had on the funding situation in the UK.”
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Harman said this is particularly true in the fintech space as “many companies need to be regulated and now can’t sell into Europe without an EU-regulated subsidiary.”
The worsening economic conditions brought on by Brexit, an adjustment to the pandemic, and a looming recession have all put a strain on businesses looking to break through in the world of fintech.
“It remains unclear exactly what the new fintech hub will provide, but given its relatively small funding amount (£5.5m) I’d imagine it will be focused on earlier stage start-ups, which I think is a good thing,” Harman added.
Other experts are hopeful for the future of the UK fintech industry too.
Dima Kats, CEO and founder at Clear Junction, told Verdict he believes the government’s investment into the sector will “prove instrumental in the future of fintech” and “prepare the UK for the future of work.”
“This funding and backing from the government could enable many UK fintech founders/start-ups to achieve true success even during tough economic conditions,” Dima Kats, CEO and founder at Clear Junction told Verdict.
“Fintech is perfectly positioned to provide well-paid, high-skilled jobs to promising talent in the years to come,” he added.
Global investment in fintech experienced a steep decline in 2022 following a global economic slowdown. The total capital invested into fintech globally was around $92bn in 2022, a stark decrease of 30% from around $130bn in 2021, according to Innovate Finance.
The UK fintech sector also saw a fairly dramatic decline last year but managed to remain in the top three countries for capital raised.
Investment in UK fintech from both venture capital and private equity firms fell around 56% in 2022, reaching just $17.4bn compared to $39bn in 2021.
Blockchain deals, which make up a portion of the fintech sector, saw an extremely steep decline in 2022, according to GlobalData.
The total value of investment into blockchain peaked in 2021 at a total of $54bn, made up of 1,301 deals. This dropped the following year to just over $27bn, with a total of 1,539 deals.
GlobalData is the parent company of Verdict and its sister publications.