UK fintech investments see overall drop in first half of 2020

Large-scale investments into the likes of Revolut and Onfido have spurred growth, but smaller fintechs are still struggling

By Shannon Moyer | 28 July 2020

New data from Innovate Finance found that UK fintechs pulled over $1.84bn (£1.4bn) in venture capital investments during the first half of 2020.

The findings show that the UK fintech market is still growing despite coronavirus, with investments up 22 percent in the first half of the year compared to the second half of 2019.

“In the wake of the pandemic, multiple industries have been hit hard, but fintech is better positioned than most to weather the current storm,” Husayn Kassai, co-founder and chief executive at Onfido, said via email. “Even before coronavirus struck, developed economies were becoming less dependent upon physical branches and cash.”

Kassai continued that society is driving innovation at the moment, with the ‘digital generation’ expecting intuitive and convenient online services. However, compared to the first half of 2019, capital has still seen a 39 percent drop.

A large portion of the aforementioned investments went to larger fintechs, with Revolut, Starling Bank, Onfido and each completing deals worth over $100m (£77.6m) in the first six months of the year. Following close behind, Thought Machine received the fifth-largest investment at $83m (£64.4m).

Innovate Finance says that these “mega-deals” help underline the maturity of the UK fintech sector, even though smaller fintechs raised just eight percent of total investments for the first half of the year.

In a press statement, Innovate Finance’s chief executive Charlotte Crosswell said that while the findings are encouraging, start-ups are still being negatively impacted by the impact of coronavirus.

In June, an Innovate Finance survey found that over 70 percent of fintech respondents had not received private funding since lockdown began, with some of the smallest firms holding under six months cash.

As of June, smaller fintechs receiving private funding primarily did so through angel investors, with venture capital and private equity lagging behind.

While there is a lag between conversations and actual funding, Crosswell expects the latter half of 2020 to be focused on bridging the funding gap across the sector, spurred by a global appetite in fintech investment.

“It is yet to be seen if the rest of 2020 sees a pick-up in activity, but in the meantime, we must help fintechs of all sizes source the capital they need to emerge from the pandemic, if our sector is to grow during the crisis,” Crosswell said.

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