VENTURE capital (VC) investment in UK fintech firms rose by 153 per cent to $1.8bn (£1.3bn) in 2017, making it a record year for the sector.
The amount invested surpassed the previous record-breaking total of $1.1bn in 2015, and followed a decrease in 2016 when investment dropped to just over $700m.
The UK attracted 224 deals, the highest volume outside the US which saw 765 deals, according to the 2017 FinTech VC Landscape report.
Innovate Finance, which compiled the data using PitchBook, said VC firms see the increase in investment as the inevitable result of the UK’s leading fintech position and “fundamental strength as a fintech ecosystem”.
Other contributing factors include a maturing industry, stronger talent base, progressive regulatory environment and high availability of capital.
The maturing of the fintech industry gave rise to larger rounds in 2017, with the top five deals in the UK all raising over $90m. Peer-to-peer lender Funding Circle made the top five, alongside TransferWise, OakNorth, Interactive Investor and Monzo.
Of the total VC investment in the UK last year, 24 per cent went into challenger banks, followed by money transfer and FX (21 per cent), alternative lending/financing (17 per cent) and personal finance/wealth management (11 per cent).
More than half (54 per cent) of investment into the UK was from non-domiciled VCs, largely based in North America (25 per cent) and Europe (14 per cent).
Charlotte Crosswell, chief executive of Innovate Finance, said: “There is no doubt that London’s position as a leading financial and technology centre is driven by the UK’s focus on policy and talent, allowing us to attract the entrepreneurs and investors that are bringing real, positive change to the world of fintech.”
She added that the UK’s progressive regulatory environment, including Open Banking and MiFID II, has also been a driver of the capital inflows.
“This has created an environment that encourages competition and innovation across incumbents and start-ups,” she stated.
However, Crosswell said although the Brexit vote did not impact investment in 2017, the industry should not be complacent.
“The political uncertainty around the Brexit negotiations could adversely affect the fintech industry, including our ability to access talent and long-term capital, and could bring about a divergence of regulatory regimes across Europe,” she warned.
The report shows global VC investment into fintech reached $14.4bn across 1,824 deals in 2017, an 18 per cent decrease from the year before. If the two China “mega-rounds” of Alipay and JD Finance – each over $1bn – are excluded from 2016 figures, global investment increased by 19.4 per cent.
The US was the global leader in terms of capital invested and deal volume, contributing three of the top five global deals: SoFi, Avidxchange and Kabbage.
China, which was top in terms of capital invested in 2016, saw an 81 per cent decrease in 2017 and dropped to third place with $1.6bn invested in over 39 deals.
The top five global investors by number of investments were 500 Startups (49 deals), YCombinator (38 deals), Startupbootcamp (31 deals), Techstars (21 deals) and Ribbit Capital (18 deals).