By Charlie Wells For years, forming a fintech startup in London was enough to dazzle venture capital firms. Now, founders are having to show success or be forced to change their strategy.

The flurry of firms set up over the past decade to try and disrupt payments and consumer banking must now contend with the lowest level of funding since at least 2016. Early innovations that helped turn London into a global hub for talent, even post-Brexit, have simply not panned out as planned.

The successes of Revolut Ltd. — Europe’s most valuable startup — or Monzo Bank Ltd., which just attracted multibillion-dollar takeover interest from Brazilian fintech giant Nu Holdings Ltd., have also added pressure for other companies to show an exit path, and help return money to initial investors.

Many founders are having to weigh consolidation, pullbacks or hard pivots.

Luke Massie was one of them. On a wave of optimism about a supposedly revolutionary development called “open banking,” Massie launched a startup called VibePay, allowing people to send money to each other, split bills and even pay through their bank accounts at checkout. He raised millions and made key hires from competitors.

But “in a post-AI world, everything’s changed,” Massie said. Account-to-account payments did not take off as hoped. Massie helped VibePay to merge with another company, then stepped down as CEO. This year, after he was no longer a director or operationally involved in the business, VibePay entered voluntary liquidation.

In September, he launched a new venture that he thinks reflects the industry’s current mood music better. It’s called Statement, which aims to build “trust infrastructure for the AI era” that connects people, businesses and financial institutions.

“The winners are appearing,” said Edward Firth, a UK banking analyst at Keefe, Bruyette & Woods. That’s created a bifurcation between those that can command billions of dollars to support further growth, and the rest looking for other ways forward.

Consumer-oriented fintechs attracted 44% of the country’s venture-capital funding a decade ago, according to Dealroom, a global platform for data about startups. That explains the explosion since 2016 of new, digitally oriented “neobanks” with brightly colored debit cards, lots of marketing and splashy apps, as well as payment firms like Massie’s VibePay.

So far this year, a mere 5% of fintech venture capital has gone to consumer-oriented outfits, with the overwhelming majority going to business-to-business companies.

Rob Moffat, a partner at the venture-capital firm Balderton Capital in London, said companies serving business have been better able to demonstrate real use cases for AI technology, be it onboarding, underwriting or accounting.

Enthusiasm for consumer fintechs has also been cooling since the steep rise in interest rates in 2022, which put pressure on funding availability as well as customer appetite. Zopa Bank CEO Jaidev Janardana said his firm has had to reassess its lending profile, being more careful with lower-income consumers.

“We were ahead,” Nilan Peiris, chief product officer at Wise Group Plc, said of Britain’s fintech scene. He has been at the company since 2014, back when it was known as TransferWise, before it went public in London in 2021 and well before its dual listing in New York this May. Peiris said that now, the industry is on its “next wave.”That wave is one where the big get bigger and go global. Revolut, Wise and Sweden’s Klarna Group Plc are pushing deeper into new services and geographies like the US.

Luke Griffiths, chief commercial officer and UK CEO of payments provider SumUp, points out the reversal of fintech’s longtime “unbundling” of financial services.

A decade ago, the strategic move was for a fintech to show it could do one thing — move money, issue cards, help merchants — better than major banks. Now, Griffiths sees the re-bundling of products, albeit with a greater focus on customer needs. All the while, major banks have had well over a decade to invest in technology themselves, even acquiring startups to fill the gaps in their capability.

“We’re at a consolidation moment,” said Amy Nauiokas, founder of early-stage venture capital firm Anthemis.

Changes in fundraising were among the reasons Tahir Farooqui quit the country. He founded a home data company called Smartlayer in 2023, but announced its shuttering in March of this year.

Farooqui said he struggled to attract funding in Britain, which he attributes in part to unrealistic expectations for startups in regulated sectors such as finance. He also feels that as a gay man of color in Britain, he faced higher barriers to funding in a space with a reputation for being both White and clubby.

Now based in Berlin, Farooqui said his new business builds on what Smartlayer offered but instead focuses on giving lenders continuous insights about their customers.

The struggles of Britain’s fintech founders — and the shuttering of their businesses — pose a threat to the industry’s future. A report by McKinsey and fintech venture-capital firm QED Investors from this year showed a “barbell-shaped” investment profile for the sector globally, with capital increasingly concentrated around a small number of later-stage firms, some for early challengers, but slim pickings for mid-stage firms.

A paper this year by Innovate Finance and Boston Consulting Group showed fintechs are taking more funding from foreign sources, such as the US or Middle East, changing their geographic orientation and the length of time they stay private, which has been trending longer.

“We are not creating enough of an equity ‘out’ in the market,” said Kunal Jhanji, a partner in BCG’s Financial Institutions practice. This limits the virtuous cycle of fintech entrepreneurs starting companies, exiting them, and then starting new ones, at a time when British governments of all political stripes have for years been trying to spur growth, productivity and entrepreneurialism.

Still, investors see pockets of opportunity in the market. Greg Cox, founder of a fintech group focused on credit and payments called Quint, said he is interested in unlocking value in what he calls Britain’s “zombie fintechs.”These are not the unicorns that typically hit headlines, but rather the smaller — yet solid — firms that have managed to bring in tens of millions in revenue. For structural or competitive reasons they can’t grow to the size their founders originally dreamed of.

“We think there’s a real opportunity to start acquiring these companies, to remove some of those structural ownership challenges,” Cox said. His mantra for zombie fintechs: “We don’t want you to be a billion-dollar business. It’d be great if that happens, but let’s build a hundred million-pound business over time.”

Starling Bank CEO Raman Bhatia said his firm — another example of a multibillion-pound-valued fintech that is yet to go public — is actively looking at opportunities to buy smaller firms to gain their staff, as a route to fresh growth. Bhatia said he’s “looking at technology-led businesses which have done lending really well.”Nigel Morris, co-founder and managing partner of the fintech venture firm QED Investors, said the fundamentals of the UK are still strong for the sector, bolstered by talent, global universities, and an established, if changed, funding ecosystem.

“We have a fighting chance,” said Morris. “It’s up to us to take advantage of it.”