Fintech investment slowdown should be welcomed by sector, says financial services chief

The latest drop in fintech investment will strengthen the financial sector in the long term, says a senior financial services official.

Rafal Andzejevski, founder of London-based financial services provider PayAlly, has argued that a fall in fintech deals last year will expose the weaker players in the industry and encourage organic growth.

The intervention follows a report by accountancy firm KPMG which revealed a 56% drop in UK fintech investment in 2022, following 2021’s record highs. This includes a significant drop in venture capital funding for fintech companies.

Andzejevski has warned that fintech’s heavy obsession with VC is unsustainable and likely to cause a crash in the sector if it continues unchecked. He believes VCs pumping money into firms before selling them on at an inflated price is a negative trend that risks creating a “fintech bubble”.

While the number of UK fintech deals fell from 724 in 2021 to 593 in 2022, the majority of deals in 2022 were VC deals (312), underscoring the continued dominance of venture capital in this market.

Andzejevski said: “The surge in investment in fintech companies should be welcomed – having less capital floating around puts the impetus on companies to scale through organic growth, not through inflated valuations. The main focus of any startup should always be building a strong foundation and to grow a business from the ground up.

“Smaller financial services firms should embrace the trend towards more mergers and acquisitions as they provide a way to maintain their place in the market and withstand economic uncertainty, of which there is much in the current market.”

London recently climbed ahead of San Francisco and New York to become the world’s largest center for fintech investment. Andzejevski says London must be wary of the pitfalls of a fintech bubble if it is to retain its global crown.

Andzejevski continued: “London has become a global beacon for financial services thanks to its world-renowned regulatory framework, its thriving technology sector and its independence as a financial market. It also has a rich history as a financial business hub, meaning it is full of world-leading institutions and experienced professionals.

“But if it is to retain its global crown, London must be wary of the fintech bubble bursting from a glut of companies with inflated valuations and very little real value. To build a financial services business that can be successful in the long term , it takes time and a strong foundation – not just pockets full of VC money.”