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November 16, 2016

UK fintech funding crashes following Brexit

China overtakes US in deal value for the first time.

By James Nunns

The first signs that UK fintechs are being negatively impacted by Brexit are starting to appear with the findings that funding dropped 26% in Q3.

That’s in stark contrast to the fortunes of investment in the global financial technology market which saw an increase of 27% in Q3 2016 up to $15.2bn.

According to statistics compiled through Pitchbook and revealed by Innovate Finance, this figure surpasses the 2015 total of $14.9bn. So there is clearly the same appetite for investment in fintechs but not so much in those in the UK.

UK venture capital investment for fintech firms decreased by 26% to $532 million, which is around half of the total 2015 investment of $1.1bn. While the UK still attracted 76 deals this year, the highest volume outside the US and keeping the UK in third place behind the US and China in terms of total investment, it is clear that the investment is much smaller.

UK Fintech VC deals Q3 2016, year to date.

UK Fintech VC deals Q3 2016, year to date.

The UK also only saw one company, Starling Bank, mentioned in the top 20 global deals, it secured $101m in funding.

The UK remains ahead of its European neighbours but the US and China in particular seem to have become much more attractive opportunities for investment.

China overtook the US for the first time in deal value with $7,117m while the US brought in $5,265.

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The majority of VC investment in the UK was in challenger banks, SME financing and money transfer, FX, distributed ledger and digital currency verticals. The report found that 64% of UK deals in Q3 were follow-on investment rounds.

With the Autumn Statement coming up in a week’s time, 23rd November, it is likely that UK fintechs will be looking for assurances as to how the government is going to ensure that investment returns to the sector in the future.

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