Scottish fintechs raise red flag amid funding challenges

Michelle Elliot, partner and restructuring specialist at FRP

SCOTLAND’S fintech sector faces an uncertain future, with two fifths of firms flagging the potential risk of failure by the end of 2023, according to new research commissioned by specialist business advisory firm FRP. 

In a poll of businesses in the fintech hubs of Edinburgh and Glasgow, FRP found that 40% of businesses in the sector weren’t confident of their ability to trade through the next six months, as challenges relating to inflation and interest rates persist.

However, this was the lowest proportion of the UK regions and nations surveyed, which also included fintech clusters in the Midlands (58%), the North East (Newcastle and Durham, 56%), in London (46%) and the North (Leeds and Manchester, 42%).

The fears are likely to be linked to challenging trading conditions, with just over a quarter (26%) seeing the valuation of their business fall over the past 12 months, as they continued to contend with rising input costs – the highest proportion recorded. Over a third (34%) also expect their valuation to decline over the next year.

With a high proportion of firms concerned about their futures, the research highlights a polarisation in the market in terms of funding – suggesting a fight for quality among venture capitalists and lenders. Against a backdrop of rising interest rates, nearly two in five firms (36%) have found funding harder to come by over the past 12 months, with just over two in five (44%) accessing finance with greater ease.

This polarisation is also apparent in firms’ plans for the future. Seven in ten (70%) of the business leaders FRP polled said that they had reviewed and amended their exit strategy in the past year. The most popular option was planning to seek new funding or investment (46%), followed jointly by seeking new consolidation or acquisition opportunities (40%).

Michelle Elliot, partner and restructuring specialist at FRP in Glasgow, said: “There’s no denying that fintech firms in Scotland are clearly finding some aspects of life challenging.

“While many have struggled to grow in the last year and, for many, it’s proving harder to source funding, we can take heart from the resilience that firms are showing in the face of these conditions. It’s still concerning that two in five worry about their ability to trade through the next six months but that’s the lowest proportion in the UK. That spirit of enterprise and ambition gives me confidence for the future.

“For those targeting further investment or consolidatory support, the coming months will be crucial in optimising their commercial operations and future profitability to develop the best proposition.”

To read more of FRP’s findings and insights into the future of UK fintech, click here.

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