Birmingham fintech sector ‘faces uncertain future’

Birmingham’s fintech sector faces an uncertain future, with more of its firms flagging the potential risk of failure by the end of 2023 than in any other region of the UK.

That’s according to new research commissioned by specialist business advisory firm FRP, which found that 58% 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.

This was the highest proportion of the regions and UK nations surveyed, which also included fintech hubs in the North East (Durham and Newcastle, 56%), in London (46%), the North (Manchester and Leeds, 42%) and Scotland (Edinburgh and Glasgow, 40%).

The fears are likely to be linked to challenging trading conditions, with more than a fifth (22%) seeing the valuation of their business fall over the past 12 months, as they continued to contend with rising input costs. Almost two fifths (38%) 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, just over two fifths of Birmingham-based fintechs (42%) have found funding harder to come by over the past 12 months, although with the same proportion (also 42%) accessing finance with greater ease.

This polarisation is also apparent in firms’ plans for the future. More than half (54%) of the Birmingham business leaders FRP polled said that they had reviewed and amended their exit strategy in the past year. The most popular change was accelerating their exit plans (56%), followed by planning to seek new funding or investment (41%).

Gemma Jones, financial advisory partner at FRP in Birmingham, said: “The Midlands has ambitions to establish itself as a significant fintech hub and the region has huge potential.

“Despite being the region with the most firms perceived to be ‘at risk’, it can take comfort from the fact that its fundamentals are fairly strong, including revenue growth, valuations and access to funding.

“With these strengths, as well as our excellent infrastructure and skills base, there’s good reason to believe that the region’s fintech firms will continue to weather the economic challenges affecting the UK – be that through their own growth or consolidation. For those eying new consolidation, investment or exit opportunities, it will be critical to focus on their commercial operations, profitability and the strength of their product or service to develop the best proposition for would be-suitors.”