UK Fintech companies have been making waves in recent years. The reason? A thriving ecosystem of startups and supportive government policies. From mobile banking to peer-to-peer lending, the UK’s fintech sector is a hotbed of innovation and growth.

When it comes to funding for financial technology, the United Kingdom is only behind the United States. With 9.1 billion  invested in FinTech in 2022, it is 24% higher than in 2021. Consequently, helping the United Kingdom maintain its position as Europe’s most alluring location for the industry.

There are now around 1,600+ companies operating in the UK’s FinTech industry. Furthermore, this figure may increase 2x by the year 2030. Additionally, the industry supports about 76,000+ jobs in the UK. And it was valued at an estimated £11 billion.

Over half of all UK FinTechs are concentrated in wealth management (like PFM) and payment processing. Furthermore, only around 17% of UK FinTechs are in the payments industry.

The following are the 8 broader UK FinTech categories:

• Banking
• RegTech
• InsurTech
• Lending
• Business Banking
• Payments
• Quote Aggregators
• WealthTech

Most preferable fintech sectors for VCs in the UK

1. Open banking and API-based solutions

Implementing the second Payment Services Directive (PSD2) in the UK offers a growing opportunity for fintech firms. The idea is to leverage open banking APIs to provide innovative financial services to consumers and small businesses.

It is a European Union (EU) directive implemented in January 2018, aiming to create a more secure and innovative payments environment across the EU by opening up the payments market to new players and increasing consumer protection.

PSD2 has significantly changed the payments landscape by requiring banks to provide third-party providers (TPPs) access to customer account information through open APIs. Consequently, enabling fintech firms to offer new and innovative payment services directly to customers. Some of these services include account aggregation, bill payments, and P2P transfers.

But the best part? All this is without the need for customers to share their login details with the third-party provider.

PSD2 has been a catalyst for innovation in the payments industry, opening up new opportunities for fintech firms. By increasing competition and improving security, it has the potential to benefit consumers and small businesses alike.

2. Digital assets and cryptocurrency

The demand for digital assets and cryptocurrencies has been growing globally. And the UK, like others, is no exception.

VC investment in digital assets and cryptocurrency has been driven by several factors. These include the following:

• Increasing popularity of cryptocurrencies
• Growth of decentralized finance (DeFi)
• Maturity of the underlying blockchain technology

One of the key focus areas for VC investment in digital assets and cryptocurrency in the UK has been developing secure and user-friendly solutions for buying, selling, and storing digital assets. This includes the development of digital asset exchanges, wallets, and custody solutions.

There has also been significant investment in DeFi startups, which are using blockchain technology to provide decentralized financial services. For instance, lending, borrowing, and insurance.

3. InsurTech

The insurance industry is ripe for disruption. The UK has a growing number of insurtech startups that are using technology to do the following:

• Streamline the process
• Increase transparency
• Provide more personalized and affordable insurance solutions

Some of the key areas of focus for VC investment in UK insurtech include the following:

• Development of digital-only insurance products
• Use of artificial intelligence and machine learning for improving the underwriting process
• Use of blockchain technology to increase transparency and security in the insurance industry

The key drivers of VC investment in UK insurtech include the growing demand for insurance products tailored to the needs of modern consumers. Consequently, creating an opportunity for insurtech startups to leverage technology to offer more flexible and affordable insurance solutions that can compete with traditional insurers.

4. RegTech

There is a growing demand for regulatory technology (regtech) solutions to help financial institutions comply with regulations more efficiently and cost-effectively. But why? Because of the increasing regulatory scrutiny in the financial sector.

As a result, this has created an opportunity for regtech startups to leverage technology to provide innovative solutions that can help financial institutions meet their regulatory obligations more efficiently and effectively.

Some of the key areas of focus for VC investment in UK regtech include the following:

• Anti-money laundering (AML)
• Know-Your-Customer (KYC) compliance
• Data privacy and security.

These areas have become increasingly important as regulators continue introducing new regulations and standards to improve the transparency and security of the financial services industry.

Wrapping up

The rise of fintech in the UK has been quite significant in the last few years. Thus changing the business and investment landscape. Consequently, Venture Capitalist investment in the UK is expected to grow as the sub-sectors mature. Thus resulting in the development of more effective solutions for financial institutions.

We are optimistic that after reading this blog, you will understand how VC investments in the Fintech sector will look in the UK in 2023. However, if you still have doubts, it is wise to speak with experts like GJM & Co.

Our accountants and other professionals will walk you through what each means, how they could impact your business, and more.

Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in.