A fork in the road: The future of UK fintech

A sector in flux

We commissioned this report to uncover the ambitions and anxieties driving decision making in fintech firms across the country.

Whilst AI is leading the agenda when it comes to the future of technology, fintech still remains the ace in the pack for investors. In fact, fintech businesses contribute more than £10 billion to the UK economy every year – supporting 76,000 jobs.

Fintechs also tend to outperform firms in other sectors too, with an annualised growth rate of 16% over the past decade, against 1.3% for the average SME

Our survey of more than 250 senior decision makers within the fintech industry revealed 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.

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How has the valuation of UK fintechs changed over the past year?

Female founders lead from the front

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55% of female decision makers said their firm had grown in value in the past year, for example, just 38% of males could say the same.

34% of female fintech leaders also said that their growth had accelerated in the previous year, contrasting with just 27% of male decision makers.

44% of females expect revenue growth to accelerate in the year ahead, against just 35% of the males we surveyed.

An uncertain future despite growth expectations

An uncertain future despite 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, 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.

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.

Percentage of firms concerned about their ability to trade through the next six months

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North East

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Scotland

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

Winds of change

For the majority of fintech businesses the valuation landscape has been positive, with 43% having increased, 29% remaining unchanged and 23% experiencing a decrease.

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.

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 year3. 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.

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A positive reset

The UK should be proud of its flourishing fintech sector, which is internationally recognised as being among the most innovative and important in the world.

While the trajectory of valuations seen in recent years may now be flattening out, it represents a return to normality after the unprecedented impact of the pandemic, with the sector’s fundamentals remaining strong.

The amount of businesses pursuing M&A strategies suggests that many remain in rude health and are likely to lead a market reset in pursuit of both new customers and innovative IP.

There may be some pain along the way, but we can have faith in the long-term future of UK fintech.