THE IMPACT of Brexit on UK fintech was laid bare, after new figures showed a 26 per cent slump in investment in the sector’s start-ups in the months following the vote.
Research from trade body Innovate Finance showed that venture capital investment in UK fintech was down 26 per cent at $532m (£428m) in the third quarter year-on-year, although this was an improvement from the second quarter, which was down 33 per cent year-on-year.
The continued decline will be a blow to the UK government, which is keen to maintain London’s position as a global fintech hub. Last month, the government announced that it is planning to hold a new, annual fintech conference in London, to attract more international investment.
Despite the decline, the UK still attracts more deals than most other countries. The UK attracted 76 deals, the highest volume outside the US at 457. And it was still third in terms of total investment of $532m, behind US at $5.27bn and China at $7.12bn.
On a global level, investment in fintech start-ups soared by 27 per cent in the three months to September, with the average deal size increasing from $14.3m to $18.1m – partly due to large Chinese investments such as Alipay.
“While the UK still attracted a high number of deals for fintech there’s been a significant drop in investment year-on-year to the third quarter of 2016, possibly due to the referendum result on Brexit and the future uncertainty of the relationship between European markets and the financial services sector,” said Lawrence Wintermeyer, chief executive of Innovate Finance.
“The UK government needs to be bold and use the tools it has at its disposal such as the British Business Bank to support the sector. This will become increasingly important with the potential loss of EU funds such as the EIF.”
The European Investment Fund, which invests EU money into small businesses, has scaled back its investment into UK venture capital funds due to uncertainty surrounding the UK’s relationship with the bloc.
Wintermeyer added: “While Brexit uncertainty may continue to have an impact on investor behaviour, remaining attractive to international talent is just as important to maintaining the UK’s current position as the world’s premier fintech hub.
“Ahead of the Autumn Statement, Innovate Finance urges the chancellor to ensure the UK continues to drive investment and innovation, attract talent and maintain an open trading relationship with the EU and globally.”
City minister Simon Kirby is on a trade mission in Singapore this week, alongside a number of UK fintech firms including RateSetter and Crowd2Fund.
He told CNBC on Wednesday that London still has a lot to offer fintech firms and said that he was confident the UK would get a good deal from its Brexit negotiations.
“We are listening very carefully to fintech businesses’ concerns about access to capital, access to high-skilled labour and also their concerns about Brexit,” he added.
RateSetter recently told Peer-to-Peer Finance News that Brexit has had a positive effect on the UK’s peer-to-peer finance sector.
For more on Brexit and how it could impact P2P, make sure to check out the full feature in next month’s print edition of Peer-to-Peer Finance News, out at the start of December.