FinTech Investment Landscape 2023

After a challenging economic slowdown throughout 2022, global FinTech entered 2023 on cautious footing as economists and investors warned that ongoing macroeconomic tumults including lingering inflation, hawkish monetary policies, supply chain problems, and a potential recession would continue to dampen discretionary spending and dealmaking.

Global fintech investment dropped by a steep 48% in 2023 compared to 2022, with $51.2 billion dollars invested into the sector across 3,973 deals from Seed through Series I. The venture market has entered the thick of a challenging, non-linear post-COVID recovery, as outlined in the Innovate Finance 2023 Half Year report.

Globally, early stage fintech investment remains strong, with seed rounds securing over $4 billion in 2023 despite headwinds, while later stage mega-deals ($100 million and above) are easing, suggesting lower growth-stage valuations and possibly a reluctance to issue new capital in this market environment. The average deal size fell to $12.9 million from $15.5 million in 2022, although it is still higher than the average of $10.3 million recorded from 2012 - 2020. Notably, FinTech has once again demonstrated its global reach and the pace of change internationally. For the first time, Asian countries in the Top 10 delivered more investment than European countries in the Top 10. The US is still leading the global ranking in 1st place, followed by the UK in 2nd place and with India in 3rd place. Moreover, the Top 5 largest deals of 2023 took place across the US, UK, India and UAE.

The US took the lion’s share of deals with $24.2 billion invested across 1,530 deals, a 44% decrease from 2022. This included Stripe’s $6.9 billion deal in H1 2023, without which the US would have fallen 60% year-on-year. The UK reported $5.1 billion across 409 deals (a 65% drop from 2022) yet well outpacing third place India which brought in $2.5 billion across 187 deals, also down 63% on 2022.

Despite a significant slowdown in venture capital investment in the vast majority of the globe, there are some indicators of recovery that position key markets for a stronger 2024 from the second half of the year onward. In this report, Innovate Finance dives into a granular analysis of the current health of FinTech and examines the emerging trends in investment and innovation.

“The industry must also bear in mind that “most of the “tourist” capital has left the market leaving an opportunity on the supply side for those with conviction to invest. In the near term this may lead to currently funded companies with weaker investor syndicates and uncertainty about ongoing support from the existing capital base,” says Jay Wilson, Partner at Albion VC.

Global Overview

Global investment in FinTech reached $51.2 billion across 3,973 deals in 2023, a steep drop from $99 billion in 2022. Deal count also declined 38%, whilst the average deal size remains strong at $12.9 million, an indicator of investor confidence in the FinTech industry.

Furthermore, while the total of global investment in FinTech represents a decline from the previous two years, it is 10% higher than the last pre-covid year of 2019 (investment in UK FinTech in 2023 was 11% higher than in 2019). Q2 and Q3 2023 reported circa $10 billion each of investment, the lowest since early 2020, although Q4 2023 saw a quarter-on-quarter increase of c.13%, the first notable increase since Q3 2021 (excluding the impact of the Stripe deal in Q1 2023).

But what does the data say about both founder and investor behaviour?

“Macro uncertainty meant that any company that has the option to defer fundraising”, says Tim Levene, CEO of Augmentum, “through runway extension either by cutting costs, rising bridge funding, or both - chose that route. The stabilisation of interest rates in Q3 and Q4 marked the first sign of a shift in market sentiment towards a more positive outlook. Rates are expected to remain elevated through 2024 and it will undoubtedly be a challenging year on many fronts, but with confidence starting to return to public and private markets we look forward to a return in investment activity.”

While macroeconomic uncertainty persists, pockets of seed stage resilience hint at ongoing innovation amid adversity, with 17% of total funding, higher than pre-Covid levels. Though allocation of funding is more selective, sustained activity into promising ventures might indicate a self-correction of markets towards realistic longer-term growth.

Across Investment Stages

Investment Across series is distributed as follows:

Despite a large deal volume occurring at seed stage (67%), significantly more capital has been invested across Series A and B, targeting FinTechs with proof of revenue and ready to scale.

The 2023 distribution is in line with 2022 although the last few years through the Covid pandemic have seen a skew in the proportion of Seed stage deals, due in part to reduced funding of later stage deals. Later stage Series C through E represent a small portion of deal volume (6% of all global deals in 2023) but point to continued availability of growth capital for a small cohort of well regarded businesses.

Megadeals Across Verticals

The Top 5 Largest Deals of 2023 were:

It is interesting to note that Payments platforms were able to close the largest capital raises in 2023, reflecting the excitement and confidence of investors in this sector.

Top 10 Global Markets

In 2023, global FinTech witnessed a broad international distribution of capital that underscores the dynamic and widespread nature of FinTech developments across the globe, with the United States as the leading FinTech market, followed by the United Kingdom, India, and other notable players. 2023 has also seen Hong Kong appear in the Top 10 for the first time with $913 million invested across 41 deals for a high average deal size of $22 million.

This is also the first time the United Arab Emirates makes the Top 10, with $1.3 billion invested across 54 deals. While these results appear modest compared to the major investment pulled in by the US and UK, it marks an exponential jump for the UAE compared to 2022.

“Part of this growth,” cites Tim Levene, CEO at Augmentum, “ is a ‘catch-up’ phenomenon as propositions such as digital banking reach these markets for the first time, but there are also cases of ‘leap-frogging’ for example with digital wallet adoption in APAC for payments and identity far ahead of Europe.”

Levene also adds that this type of international growth presents “[opportunities] for established UK and US fintechs is in providing infrastructure to support the digital transformation in these markets - as we’ve seen in Europe, the response from incumbent’s to rising competitive pressures from fintechs is to increase their spending on digital transformation, creating the significant opportunity that underpins the rise or B2B fintech.”

Most Top 10 countries experienced decreases of c.60% in 2023 versus 2022: India recorded $2.5 billion of investment, a fall of 63%, Singapore a fall of 41%, France a fall of 56% and Germany a fall of 66%.

Regardless of individual market fluctuations, says James Codling, Managing Partner Volution VC, “the trend of Fintech” globalising is a continuing validation that this industry is a significant part of the new economic zeitgeist rather than a temporary phenomenon.”

Steve Lemon, Partner at Volution VC adds that, “Both Singapore and the UAE have demonstrated a commitment to creating a supportive environment for FinTech, suggesting that while the rate of growth may normalise, the upward trajectory is likely to continue.

For UK and US Fintechs, the vigorous expansion in these regions presents significant opportunities, for example, through partnerships or direct investments, bringing expertise in regulatory technology, analytics, and cross-border payments to regions eager for innovation and international collaboration.”

Across Europe

In Europe, a slight reshuffle has taken place in its own Top 10 Rankings. Europe - excluding the UK - saw a total $4.4 bn invested into its FinTech sector with the UK leading the pack in Europe with $5.1 billion.

Says Shawn Atkinson, Tech Partner at Orrick: “This is further evidence of London’s continued pre-eminance as a centre of innovation and global finance [and[ the ability of the City of London to attract the best and brightest minds from around the globe and foster their development.”

Capital Across Deals for Euro Top 10 (2023):

The UK, France and Germany hold down their spots in the Top 3 and the UK outpaces the continent by a significant margin, securing more capital than the next 28 European countries combined.

Rising star Spain maintains a position in the Top 10 for a second year, jumping from 7th in 2022 to 6th this year– and beating stalwarts Denmark and Sweden.

The UK Landscape

As a major player on the global arena, the UK – like the US – has witnessed investment fluctuations that fall in line with macroeconomic conditions.

The UK attracted $5.1 billion across 409 deals in 2023, a significant drop from $14.6 billion in 2022. However, the average UK deal size for 2023 sits at $12.5 million, well ahead of all years up to 2020. The Covid periods of 2021 and first half of 2022 saw some well documented market froth before the fall in investment over the last 18 months, but 2023 proved challenging. 2023 finished with a well-received $122 million capital raise for Atom Bank, and market talk of potential investment in Monzo by Alphabet’s investment arm. These may be signs that the market is now getting back on track. London continues to be a leading global FinTech investment hub with $4.5 billion received in 2023, down 56% from 2022.

Tim Levene, CEO at Augmentum adds some context: “The UK remains the leading European market for fintech and we expect this to remain the case in 2024. The powerful foundations of talent, regulation and capital have driven the development of a resilient and diverse fintech ecosystem. Fintech hubs across Europe - Stockholm, Berlin, Paris, Tallinn - continue to mature, but scaling an ecosystem takes many years and the UK remains ahead.”

The UK also remains an attractive landing destination for FinTechs expanding globally from APAC and Australasia, with some funds like Australia-New Zealand founded 1835i directing their origination strategies towards the UK.

Nicole Anderson, Venture Partner, says: “[We] source globally but our base in the UK is justified by the fact that the UK represents the #1 market for expansion making up 12% of Australian / NZ FinTechs.”

The figures for 2023 show a more diverse investment landscape similar to the global distribution of venture across series, with Seed deals comprising the majority of the deals but with significantly more capital allocated towards Series A and B ventures.

There were no deals across Series F-G in 2023, compared to 3 such deals in 2022 (for a total $932 million), which combined with Stripe’s move towards the US suggests that the UK continues to face challenges in securing growth capital for its FinTech sector.

Jay Wilson, Partner at Albion VC, says: “While high level governmental support for UK FinTech remains strong (e.g. CFIT), on the ground FinTechs are finding it hard to navigate regulatory permissions (this is in line with an adjustment to the FCAs position of FinTechs).”

Female Founders

Female founders in UK FinTech see a few bright spots. Through the Pitchbook database Innovate Finance was able to identify 246 female executives who are either co-founders or the CEO of a UK FinTech company.

Across the data analysed, we identified 59 deals that took place this year netting $536 million dollars deployed into female-led FinTechs. This $536 million deployed to female driven fintech represents 10.5% of the UK total of $5.1 billion dollars, a step forward for women founders/leaders.

The last time the UK saw this representation of female driven FinTech was 2021, with $1.1 billion allocated to female founders/leaders.

“The fact that this year’s [level of investment] includes several Series B and C deals for companies with female co-founders who have secured significant funding is promising,” says Nina Foote, Partner and Head of Growth at Volution VC. “ However, there is a persistent challenge in achieving gender parity, particularly for women leading on their own.

Initiatives like mentorship for underrepresented founders, commitment to the Investing in Women Code, and membership in EU Women in VC are steps towards building a more inclusive environment. Additionally, the focus of VCs on investing in women and Limited Partners (LPs) seeking diverse fund investment strategies is a positive trend, yet there's still significant work to be done.

In 2023, we see the capital allocated to female-led and co-founded FinTechs was distributed across a larger number of growth stage businesses, including Quantexa ($129 million), Blockchain.com ($110 million) TapTap Send ($65 million), and Superscript ($54 million), each rising above a $50 million investment threshold.

The majority of 2023’s capital into female-driven fintech went to startups with a woman on a co-founding team. While this marks a departure from 2021’s boom year for sole female founders, this new distribution represents increasing diversity in FinTech C-suites.

Tim Levene, CEO at Augmentum, adds: “There is a wealth of female leadership talent in fintech as reflected in increasingly diverse c-suite and board composition. In time this will flow through into greater diversity in founding teams as the powerful operator-to-founder flywheel cycle plays out from more of Europe’s leading fintech companies.”

US Overview

The world’s largest FinTech market faces a few challenges and triumphs of its own. US FinTech raked in $24.2 billion in 2023, a whopping 47% of the global total, and an average deal size of $15.8 million.

Four US regions have emerged as its top FinTech markets, with few surprises amongst the results. Californian FinTech came in at the front with $13.1 billion invested across 412 deals. New York followed in second with $4.7 billion invested across 339 deals. Massachusetts came third with $1.2 billion invested across 47 deals. And Texas came in fourth with $855 million across 101 deals. Florida rounds out the Top 5 with $747 across 102 deals.

Over the past five years, New York has emerged as a leading US FinTech market with strong investment into early stage innovation and significant capital available for select growth deals (post Series C). Ten years ago New York netted a humble $449 million in capital invested across 60 deals. Since 2013 New York has earned its “Silicon Alley’’ moniker, and 2023 saw an average deal size of $14 million.

The strength of this market prompted Innovate Finance to begin operations in New York in 2023, with further programming and engagement expected throughout 2024 aimed at serving the burgeoning FinTech community, with a corridor for US FinTechs into the UK and vice versa.

“The interconnectivity between London and New York Fintech has never been stronger,” say Fin Capital Partners Henry Cashin (Investment Partner) and Nick Daley (Investor), “ but there is still a long way to go” in terms of recovery and potential for common growth.

Aside from their commonalities across their financial services histories, density of institutions, and depth of domain-specific talent, Fin Capital clarify, “Now that European expansion is more challenging, the U.S. and specifically New York, offers a gateway into one of the world’s biggest markets. The two regions continue to have their differences, for instance in their approach to regulation--with arguably the UK being ahead - but these are opportunities for founders to accelerate the adoption curve through innovation and capture long-term value.”

Kevin Chong, Co-Head of Outward VC, adds further context: “US and UK fintech continue to lead in deal flow and capital raising because they are the world’s two most established ecosystems where tech expertise and regulatory transparency combines with repeat founders who know how to partner with VC.”

1. Capital Across Fintech Series in New York (2023):
2. Seed: 106 deals, $768.23 million 
3. Series A: 41 deals, $619.5 million 
4. Series B: 11 deals, $406.64 million 
5. Series C: 1 deal, $43 million 
6. Series D: 5 deals, $890.2 million 
7. Series E: 1 deal, $150 million 

The maturity of this market has prompted Innovate Finance to open its first international office in New York, with further research and programming expected into 2024 and 2025 to serve the burgeoning FinTech community.

“The interconnectivity between London and New York Fintech has never been stronger,” say Fin Capital Partners Henry Cashin (Investment Partner) and Nick Daley (Investor), “ but there is still a long way to go” in terms of recovery and potential for common growth. 

Aside from their commonalities across their financial services histories, density of institutions, and depth of domain-specific talent, Fin Capital clarify, “Now that European expansion is more challenging, the U.S. and specifically New York, offers a gateway into one of the world’s biggest markets. The two regions continue to have their differences, for instance in their approach to regulation--with arguably the UK being ahead--but these are opportunities for founders to accelerate the adoption curve through innovation and capture long-term value. At Fin, we help build category leading global Fintech companies, with active portfolio positions in both geos, while enabling our portfolio companies to bridge the divide between the U.K. and U.S. – helping them move cross-border for GTM scale, talent, and investor access.”

Emerging Trends of 2024

When looking at the 71 megadeals (deals of over $100 million) that took place in 2023, the three FinTech verticals attracting the most investment cover B2B and consumer lending wi 17 mega deals and Blockchain;payments; and insurtech tied with 9 megadeals each. The remaining deals largely represented banking, wealth building & management, and investing and brokerage.

Concluding Remarks & Future Gazing

The global FinTech landscape navigated a cautious start in 2023, echoing the slowdown witnessed in 2022 amidst concerns related to inflation, monetary policies, supply chain challenges, and the spectre of a potential recession. What does the New Year look like?

“Going into 2024, volatility will continue to weigh on investors,” says Kevin Chong, Co-Head at Outward VC. Chong has often commented on the macro-environment in previous editions of the Innovate Finance Investment Report. “ As interest rates start to fall and major elections in the US, UK and EU (and also Taiwan) have taken place, investors will feel more confident about doing deals….This coming phase will see leaner, more resilient start-ups matched with leaner, more resilient investors.”

When looking at the investment trends that emerged in 2023, the FinTech verticals attracting the most investment were Lending, Blockchain, Payments and Insurtech. As noted above, the Payments sector stood out among the verticals for their ability to close the largest capital raises in 2023.

It should be no surprise that payments have come out on top, according to Nicole Anderson, Venture Partner at 1835i. “In the payments sector consumer trends suggest there is a continued decline in cash usage, while at the same time an increased use of mobile devices for payments, and rising awareness of alternative payment methods.” 1835i, an Australia and New Zealand based fund, has been an investor in Australia’s home grown unicorn, AirWallex.

“In general, financial institutions are more cautious about buying new technology weighing on the growth of B2B institutional FinTech vendors. This trend is likely set to continue in the first part of 2024”, says Jay Wilson (Partner, Albion VC).

Kevin Chong adds “As the drivers of innovation shifts from mobile and cloud to data and AI, [we will see] the intersection of financial services and insurance with climate, education and health.”

Despite the overall decline, the trends in the second half of 2023 point to potentially having reached the bottom of the market. All equity markets, private and public, have experienced a cyclical downturn in issuance over the last 2 years, and markets usually reopen first with investors backing the highest quality companies. The majority of investors surveyed for this report remain bullish on payments, as well as regtech, insurtech and AI - particularly wherever these sub-verticals offer solutions to, in Volution VC’s words, “streamline process[es], mitigate risks, and reduce costs.”

High profile deals in the UK such as Atom Bank’s capital raise in Q4 suggest the market is re-opening at the top end for high quality names which may open the door slowly to the wider market through 2024, in particular once general elections in the UK and US have completed.

Broadly speaking, 2023 has been a truly challenging year for FinTech around the world and closer to home in the UK. Necessity nevertheless remains the mother of invention, and investors are unanimously excited about to “the innovation yet to come.