The future of fintech: Zooming in on the Midlands

Birmingham’s fintech sector faces turbulent times ahead, with more of the region’s businesses flagging the potential risk of failure by the end of 2023 than in any other region in the UK that we surveyed.

Our research found that 58% of businesses in the sector weren’t confident in their ability to trade through the next six months, as challenges relating to inflation and interest rates persist. This was the highest proportion of the regions and UK nations surveyed, which also included fintech hubs in the North East (Durham and Newcastle, 56%), in London (46%), the North (Manchester and Leeds, 42%) and Scotland (Edinburgh and Glasgow, 40%).

Uncertainty around the ability to continue trading is likely rooted in funding challenges such as the falling valuations of fintech companies. More than a fifth (22%) of those surveyed for the region saw the valuation of their company fall over the past 12 months, as they continue to contend with rising input costs. Almost two fifths (38%) also expect their valuation to decline over the next year.

With a high proportion of firms concerned about their futures, our research highlights contrasting experiences among Birmingham-based fintechs in respect of funding, just over two fifths  (42%) have found funding harder to come by over the past 12 months, and the same proportion (also 42%) have accessed finance with greater ease. This juxtaposition may indicate a fight for quality among venture capitalists and lenders.

This polarisation between fintechs in the region is also apparent in firms’ plans for the future. More than half (54%) of the Birmingham business leaders we surveyed said that they had reviewed and amended their exit strategy in the past year. The most popular change was accelerating their exit plans (56%), followed by planning to seek new funding or investment (41%).

Despite being the region with the most businesses perceived to be ‘at risk’, its fundamentals remain fairly strong with feedback on revenue growth, valuations and access to funding. With these strengths, as well as the excellent infrastructure and skills base in the region, we can anticipate well-placed fintechs will continue to be resilient in the face of economic challenges affecting the UK, be that through organic growth or consolidation. For those considering new consolidation, investment or exit opportunities, it will be critical to focus on commercial operations, profitability and the strength of their product or service to develop the best proposition for potential suitors.

To discover more of our findings and regional insights into the future of UK fintech, click here.