The UK’s wealthtech sector has attracted significant investment in recent years. But 2022 shook the industry with its crypto saga, tech layoffs, and economic and geopolitical turbulence.
The number of wealthtech deals, however, broke records with a 41% increase from the previous year - a contrast to the slowdown in funding.
As we begin the new year, let’s have a look at some major trends that influenced the wealthtech sector in 2022 -
- Fall in fintech funding
Investors were much more cautious in 2022 because of the turbulent financial markets, high level of inflation and increasing interest rates.
KPMG’s biannual Pulse of fintech report showed that a total of $9.6bn was invested in UK fintechs in the first six months of this year, compared with $27.8bn for the same period in 2021.
But despite the fall in the UK fintech investments this year, British fintechs still draw more funding than those in France, Germany, China, Brazil, and Canada.
- Compliance and regulation remain key
The growth in wealthtech and economic instability has led to calls for tougher regulations - to protect the customers as well as the integrity of the financial markets.
For example - The FCA’s incoming Consumer Duty guidelines require a firm “to act to deliver good outcomes for retail customers”. Simply put, firms must act in good faith and put customers' needs first.
Newer offerings and collaborations between fintechs and banks have also attracted regulators’ scrutiny - a trend that might continue in 2023.
- Embedded Finance takes centre stage
Embedded Finance is the use of banking and payments services delivered over API, as-a-service, or “on rails”. It’s an umbrella term encompassing all financial services offered by both banking and non-banking companies.
The growth of embedded finance services has been rising in 2022 - 3 in 5 UK adults now use embedded finance while shopping online.
The sector has seen many consumer brands entering the market with solutions like investments, accounts, cards, and payments – all under the umbrella of embedded finance.
2023 might also see the rise of integrated financial services firms offering customers better efficiency and value for money.
- Greater focus on sustainability
Investors are becoming more conscious of the impact of their investments on society and the environment. The availability of more sustainable investment options and the growth of impact-focused online platforms have made it easier for investors to access these alternatives.
A PwC report found that ESG-related assets under management (AuM) will hit $33.9tn by 2026, from $18.4tn in 2021 - a whopping 84% rise.
But the study also reported that the demand for ESG-related products is quickly outstripping supply. 88% of institutional investors say companies should be more proactive in developing new ESG products.
Alongside the rising popularity of sustainability, there is a growing concern for greenwashing. The FCA has recently proposed a few measures to tackle this with the help of sustainable investment labels and more.
WealthTech isn’t showing any signs of slowing down. Digital transformation is still the top agenda, and banks are increasingly looking towards wealthtech to bring in more customers. Moreover, with the influx of a new generation of tech-savvy investors becoming more actively involved in wealth management, the big picture is in favour of wealthtech.