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The impact of COVID-19 on UK fintech


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Recently, we released our preliminary report that measured and mapped out the business impact of COVID-19 on the high-growth space. Our findings showed that 53% of the country’s most ambitious companies are under moderate to critical threat from the coronavirus pandemic. But impact varied widely between sectors, with some almost entirely under threat, and others showing significant strength. 

This week, we’re shining a spotlight on the UK’s best funded tech sector – fintech. From the impact on everyday operations to jobs at risk and fluctuating investment figures, we examine the current standing of the market in the face of the coronavirus pandemic. 

 Impact Overview

Companies at risk

The economy has been hit hard in the wake of COVID-19, and the fintech market is no exception. But it is better positioned than most to weather the current storm. Our research has revealed that only 1% of fintechs are critically affected and 2% are severely affected; this is low compared with the wider ecosystem, where 17% of high-growth companies fall into these categories. 

There are a whole host of factors as to why the fintech market is less negatively affected than others. The majority of fintechs (87%) have raised equity finance which means many have hard cash as well as access to expertise and investor networks in order to get through this period. Also, 73% of fintechs are located in London, and regionally this has had the highest proportion of positively impacted businesses.

Furthermore, tech sectors in general are the most likely to experience a positive or low impact, as they tend to be agile, innovative and well enabled for remote working. For example, VoIP, EdTech and eHealth have fared particularly well, with very few companies at risk. This is also reflected in the fintech landscape; 66% of fintechs are currently at low risk – more than double the wider ecosystem average of 32% – whilst a whopping 20% are potentially positively affected.

Employees at risk

This is all good news for employment figures; few jobs in the fintech sector are at risk with only 2% of jobs immediately under threat (in the critical and severe categories), versus 22% of jobs in the wider high-growth economy. Only 20% of fintech jobs are moderately at risk and more than half (56%) are at low risk. 

Despite this, some of the best funded fintechs are showing caution and have taken measures to reduce their operating costs: Monzo’s CEO Tom Blomfield, for example, is reported to have forgone his Salary for the next 12 months.

 Areas of Impact

Of fintechs we track, 3% are restricted in providing their product/service or have limited physical services, whilst 6% are currently offering their products/services at a reduced cost or, in some cases, for free. The highest common negative impact on fintechs has been a loss of a key customer group, particularly those that sell to businesses that have been forced to close due to the coronavirus pandemic, such as retail stores.

The negative impacts are most pronounced for fintechs that rely on payment transfers and transactions as a source of revenue – this is mostly due to a decrease in spending. Fintechs relying on international payments have been hit particularly hard by decreased international trade, travel and financial transfers. 

For instance, FourEx is a fintech company that is able to automatically evaluate coins and notes from a variety of countries through image recognition technology and exchange them. Unsurprisingly, with current travel restrictions and government lockdown measures, FourEx closed its self service kiosks when it lost a key chunk of its customer base. Consequently, it has been ‘critically’ impacted in the wake of COVID-19. Likewise, Travel Money Club, which offers a similar currency exchange service, has had to temporarily cease all operations. Altogether, five of the UK fintechs we track have temporarily ceased their operations, and it’s predominantly those in consumer banking and finance that make up the small count.

On a more positive note, 20% of fintechs are reporting a surge in demand. With the industry being built around the idea that banks and other financial services businesses would use increasingly more sophisticated technology over the years to come, it is perhaps no surprise that the industry is seeing an accelerating demand for its services as large antiquated companies need to digitise, and do it fast. Of those fintechs being positively impacted, the vast majority seeing a surge in demand specialise in AI, automation and digital ID services. With the need for tighter infrastructure and better technology in companies it is likely that demand will continue to grow.

Consumer focused challenger bank Revolut, currently in its growth stage of evolution with over 10 million users, is expected to be less negatively impacted. Although the company has seen a drop in downloads and founders Nikolay Storonsky and Vlad Yatsenko are forgoing their salaries for a year to help keep the banking service afloat – the closing of a £383m funding round in February has likely placed them in a better position than most. Unlike competitors, the startup hasn’t laid off or furloughed any of its 2,500 workers, although it did ask employees to exchange a percentage of their wages for shares in the company. Yet, perhaps most telling of the company’s position is its announcement in May that they were looking to buy rivals hit hard by COVID-19.

Fundraising statistics

 With new demand comes opportunity, but for startups usually require investor backing in order to take full advantage of this. On the surface, the equity fundraising data for Q1 2020 looks optimistic, yet many of the deals announced were growth stage deals that will have been in the works for months. The real impact of COVID-19 on investment will not be shown until later in the year. However, it’s still useful to examine this data to understand the position of the fintech sector and how well equipped it is against the current conditions. 

Q1 2020 was an incredibly strong start to the year for fintech, with 112 deals totalling £1.1b, the second highest amount since our records began. This was also a significant increase, more than double, from Q4 2019 where the total fundraisings were £410m. 

Already in Q2 we are seeing a drastic decline in the number of fundraisings being announced. Many fintechs run on a growth before profit business model, with backers typically investing large amounts with a longer term picture in mind. So if investors continue to show reluctance in investing in new opportunities, then fintech startups will be under serious threat over the coming months.

 Investment Stages

Deal numbers into fintech companies are down across all stages except the growth stage, which grew from six deals in Q4 2019 to 15 in Q1 2020, totalling £857m. This broke the record amount invested initially set in Q1 2019. 

There were particularly dramatic declines in deal numbers at the seed and venture stages, which saw 12% and 45% declines respectively. This is a continuation of a trend across the ecosystem that has been happening for the past few years, which has seen more investment in growth stage deals and less in seed and venture stage. 

But with 37% of ambitious fintechs currently in the seed stage, it is imperative that investment is redistributed and channeled into companies in the earlier stages, else we risk losing a generation of ambitious fintechs, and the pipeline of companies reaching the latter stages of growth will dry up.

 The biggest deals of 2020 

There have been some notable fundraisings already this year. So far, the top ranking deal of 2020 has been secured by unicorn challenger bank, Revolut. The £383m raised is Revolut’s largest deal yet, and makes it the highest valued fintech company in the UK. 

The second largest was secured by iwoca, which provides small businesses with short term loans with fixed interest rates. The £85.6m was provided solely by Insight Investment (UK), one of the largest global asset management companies. 

Of the top ranking deals secured so far this year, all were megadeals (investments worth £50m+) secured before lockdown measures took hold. These companies will be best placed to survive and thrive through the pandemic.

There have still been notable fundraisings amongst fintechs since lockdown, albeit in smaller amounts. In May, Flagstone, a developer of a cash deposit marketplace and a frequent partner of challenger banks like Revolut, raised £11.9m from existing investors Kindred Capital VC, and OMERS Ventures. 

Similarly, challenger bank Yapily secured investment in April. Leading the latest investment round of £10.6m was Lakestar, which is also a backer of Revolut, and is well known as being an early investor in Skype, Spotify, Airbnb and Facebook. Existing investors HV Holtzbrinck Ventures and LocalGlobe also backed the round.

Thought Machine

 Closing Thoughts 

With the current crisis shaking up traditional financial markets, the need for a deeper marriage between tech and traditional institutions is essential for recovery: we saw the fintech revolution rise from the ashes of the financial crisis of 2008, and the roots of a similar digital transformation have begun to grow from the mire of our existing crisis. 

However, in order to be in the position to grasp such opportunities, these businesses will require more financial backing. It remains to be seen the true impact COVID-19 has had across the fintech landscape, but central to its success will be investment into the seed stage – the future of fintech.


All the data used in this blog is available on the Beauhurst platform, where you can search across 30k of the UK’s high-growth companies. Our recent addition of a COVID-19 impact dataset means that each company has been assigned a number of impact tags. From these, our in-house analysts have determined a company’s COVID-19 impact status, ranging from permanent closure to potentially positive impact. 

As a result you can use our data to:

Identify new opportunities in positively impacted businesses

Save time by focussing your business development efforts on leads that are performing well and are in need of your products and services, whether that’s a stream of new candidates, legal and professional services, or new funding to continue their growth. 

Identify new opportunities in negatively impacted businesses

Identify opportunities that others have missed, from top talent exiting distressed companies, to more affordable avenues for investment and acquisitions in a diminished market.

Understand your exposure to risk

Monitor your client portfolio, region or sectors of interest to understand where your strengths and risks lie. Receive notifications when any companies in your selection see a change in impact status, so you can act quickly and effectively.

Help those in need

Determine which companies are struggling in your region or local authority, and reach out to them with immediate business support.

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