Investment in UK-based fintech companies declined to £1.8bn in the first half of the year, its lowest six-month total since 2016, according to KPMG’s Pulse of Fintech H1 2026 report.
British financial technology companies had raised £5bn in funding in H1 2025, a year in which the UK accounted for 68% of fintech investment in the EMEA region.
And while the UK did attract more fintech investment than any other EMEA economy between January and June, its share of total funding fell to a more modest 22%.
The number of deals, encompassing investment, mergers and acquisitions, dropped year-on-year from 281 to 205, again the lowest level in a decade.
Such shrinkage underlines the difficulty the fintech sector has had in maintaining investor interest amid geo-economic instability and the seemingly overwhelming dominance of AI.
Indeed, artificial intelligence has been the main factor in total investment in UK startups rising to its highest level since 2022, suggesting that non-AI sectors may be finding it hard to compete for funding.
Yet analysts suggest that an improvement in the wider economic and political situation could help the sector, while in the meantime UK fintech firms will have to work very hard to stand out in an increasingly crowded market.
A regional decline amid a global increase
One thing worth pointing out, however, is that global fintech investment rose between H2 2025 and H1 2026, from $72.2 billion to $103.1 billion.
The Americas accounted for $80.8 billion of this total, buoyed by Global Payments’ $24.3 billion acquisition of Worldpay, which was headquartered in London up until 2018, when it moved its global base to Ohio following a previous acquisition by Vantiv.
This would suggest that a decline in fintech funding is primarily a UK and European problem, and may therefore stem from underlying issues to which the UK and Europe suffer greater exposure.
For KPMG, the chief culprit is the current economic landscape, which has been shaped by ongoing conflicts in the Middle East and Ukraine, as well as President Donald Trump’s continued use of tariffs (which resulted in the EU losing 30% of the value of exports traded in Q1).
Given Europe’s greater exposure to tariffs, and to rising energy prices, the EMEA region may currently seem like a less attractive destination for investment.
“While there are bright spots, the geopolitical and economic headwinds facing firms only stand to intensify as the year continues and the second half of the year is likely to remain challenging for fundraising,” said Hannah Dobson, KPMG’s Head of Fintech.
Is AI the villain?
Speaking to TechRepublic, Dobson also suggests that the rise of AI could be a factor in the decline in funding for UK fintech companies, which may be struggling to compete because they don’t promise the same level of growth as AI firms.
“The rapid growth of the wider AI sector is undoubtedly increasing competition for technology investment, which will be contributing to the decline in UK fintech investment,” she says. “We are seeing this within the sector itself — the fact that investment in AI-related fintech rose to £445 million in the first half of 2026 — bucking the wider decline.”
As mentioned above, the UK and Europe have actually attracted high levels of investment so far this year, yet most of this is for AI.
European businesses secured €21.9 billion in funding in Q1 2026, the highest level since Q2 2022, with AI business cornering 61.3% of this total.
What’s interesting here is that the number of deals actually shrank in Q1, suggesting that, as with fintech funding, there may be fewer investment opportunities.
What opportunities that do remain are increasingly gravitating towards AI-related concerns, as revealed in KPMG’s latest Pulse of Fintech report.
“This also shows that investors are not pulling away from the sector altogether,” explains Dobson. “Instead, they are redirecting capital towards fintech businesses with strong AI capabilities.”
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Businesses must offer ‘genuinely differentiated technology’
And while Dobson does agree that AI may “partly explain” the decline in investment for non-AI fintechs, she affirms that there are other significant causes.
“A smaller funding pool, economic uncertainty, higher financing costs, subdued exits and greater investor selectivity all play a part too,” she adds.
Given these factors, several conditions will need to fall into place before UK and European fintech enjoys a substantial recovery, including the easing of financing costs and greater regulatory clarity in such areas as digital assets.
In the meantime, Dobson says that competition will remain fierce, and that companies will have to work very hard to secure slices of what may be a comparatively shrinking pie.
She concludes, “investor capital is likely to remain concentrated on established firms or businesses offering genuinely differentiated technology and clear, credible paths to profitability.”
