Investment in the UK fintech sector in the first half of 2020 fell by over a third against the year prior.
According to the latest data from Innovate Finance, there is “cautious optimism ahead”, however, with investment up by 22% against the second half of 2019.
Venture capital investment tumbled by 39% in the period, falling from $3bn (£2.39bn) invested into 263 startups in the first half of 2019, to $1.84bn (£1.43bn) invested into 167 startups at the start of this year.
Over half the funding went to five companies, with 47% made up of deals over $100m (£77m), underlining the “ongoing maturity of the UK FinTech sector, which is now attracting more growth investors as these innovative firms grow and scale”.
Four “mega deals” were completed by Revolut, Checkout.com, Starling Bank and Onfido, with the fifth biggest deal coming from Thought Machine, which received $83m through investments.
A fifth of investments in the half-year period went towards companies receiving between $5m (£3.9m) to $20m (£15.5m), with 35 fintech groups raising over $376m (£292m). A total of 87 groups, meanwhile, raised up to $5m (£.9m).
According to Innovate Finance, global interest in fintech remains high, with investor appetite unaffected by the pandemic.
It added: “With digital adoption of financial services quickening as a result of the COVID-19 crisis, the industry has come to the fore as an alternative solution to the financial difficulties faced by individuals and businesses alike.
“The sector has the potential to transform the UK economy and boost financial wellbeing as the country emerges from the crisis, and the focus in H2 2020 will be on investors bridging the funding gap.”
Charlotte Crosswell, CEO of Innovate Finance, said: “It’s encouraging to see investors are still backing FinTechs, particularly those which are accelerating the digitalisation of society.
“But we need to highlight the significant drop in the amount of capital raised during the first half of the year. This is particularly impacting start-ups, with a recent survey showing that 75% of smaller FinTech firms are concerned about their next funding round.”
She added: “Whilst early stage conversations suggest capital is ready and waiting to be invested, there is still a lag in actual funding.
“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”.
Jay Wilson, Investment Manager at Albion VC, said: “Anecdotally it very much feels we are back firing on all cylinders, deal activity at all stages of the funnel is happening. From my conversations with other investors I understand this is true for my peers too. To that extent Q2 2020 might get chalked up as a pause rather than a long term inflection point in fintech funding activity.”