The recent fall in fintech investment will strengthen the financial services sector in the long-term, says a leading financial services figure.
Rafal Andzejevski, founder of the London-based financial services provider PayAlly, has argued that a drop in fintech deals last year will expose the weaker players in the industry and encourage organic growth.
The intervention follows a report from accounting firm KPMG which revealed a 56% fall-off in UK fintech investment in 2022, following 2021’s record high levels. 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 is 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 fintech deals in the UK fell from 724 in 2021 to 593 in 2022, the majority of the deals in 2022 were VC deals (312), highlighting venture capital’s continued dominance of this market.
Andzejevski said: “The drop in investment into fintech companies should be welcomed – having less capital flowing around puts the impetus on firms to scale through organic growth, not through inflated valuations. The primary focus for any start up should always be building strong foundations and growing a business from the ground up.
“Smaller firms in financial services should embrace the trend towards more M&As as they provide a way to maintain their place in the market and weather economic uncertainty, which there is plenty of in the current market.”
London recently climbed ahead of San Francisco and New York to become the world’s biggest centre for fintech investment. Andzejevski says London must be wary of the pitfalls of a fintech bubble if it’s to retain its global crown.
Andzejevski continued: “London has become a global beacon for financial services thanks to its world-renowned regulatory framework, its booming tech 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 exploding because of an excess of companies with bloated valuations and very little real worth. To build a financial services business that can be successful in the long-term, it takes time and strong foundations – not just pockets full of VC money.”