Tracxn, a leading global SaaS-based market intelligence platform, has released its Geo Quarterly FinTech UK Report - Q1 2023. The report, based on Tracxn’s extensive database, provides insights into the UK FinTech space.

The UK has been one of the most FinTech-friendly nations, leveraging its favourable time zone, better infrastructure & political support and a globally acknowledged regulatory practice. The country has the highest FinTech adoption rate of 71%, compared with the global average of 64%, and has the second highest number of FinTech startups, next to the US.

UK’s FinTech startups witnessed their highest funding in Q1 of 2022, after which the funding started to decline. This drop is majorly due to the ongoing Russia-Ukraine war, which increased oil and energy prices rapidly. This in turn induced a higher inflation rate and high cost of living for UK citizens. Q1 of 2023 is the least funded quarter in the last three years (since 2020).

In Q1 2023, UK FinTech startups raised a total of $595 million, a drop of 65% from total funding of $1.7 billion in Q4 of 2022. This is also 89% lower than the funding of $5.5 billion recorded in Q1 of 2022. Late-stage funding was the most affected in Q1 of 2023, plunging 95% and 63% when compared with Q1 2022 and Q4 2022, respectively. In the first quarter of this year, companies in the FinTech space attracted late-stage investments worth $197 million, as against $4.2 billion in Q1 of 2022 and $533 million in Q4 2022.

Startups in this space recorded early-stage investments worth $315 million in Q1 2023, a fall of 69% and 71% from Q4 of 2022 and Q1 of 2022 respectively. Seed-stage funding witnessed a marginal drop of 5% from Q4 2022 having raised $83.6 million in funding in Q1 2023. The highest funding in Q1 2023 was observed in February, but it is still 83% lower than February 2022, which was the highest funded month in the past decade.

Alternative Lending, Banking Tech, and Digital Insurance were the top-performing segments in the first three months of 2023. Companies in the Alternative Lending segment attracted the maximum investments in Q1 2023, 28% higher than in Q4 2022. However, this is still 77% lower when compared with the amount raised in Q1 2022.

Among UK cities, FinTech companies in London raised the highest funding this quarter ($481 million), followed by Alfold ($40 million) and Cardiff ($30 million). Seedcamp, Accel and Anthemis Group are the most active investors in the UK FinTech space. 

No new Unicorns emerged and no IPOs took place in the first three months of this year, similar to the previous quarter. However, there was a slight uptick in terms of the number of acquisitions, with 26 acquisitions in Q1 2023, as against 24 in Q1 2022 and 22 in Q4 2022. 

No funding round reached the $100 million mark in the UK FinTech space in the first quarter of this year. Neobanking startup Zopa raised $92.5 million, making it the biggest amount raised in the sector during this period. 

In response to this downward trend in investments, the UK government has taken a number of measures to support startups. In February 2023, the government launched a National Hub for FinTech, which is expected to focus on early-stage startups. Further, tax support for research-intensive startups was also introduced in the UK’s spring budget. These measures are expected to support and encourage startups in developing better technologies or better problem-solving ideas to sustain their business.