Digital finance startups in the UK may find it more difficult to secure funding due to increasing interest rates and investor fear.

Following the failure of Silicon Valley Bank, execs warned an industry gathering on Monday that digital finance startups in the United Kingdom may find it more difficult to secure funding due to increasing interest rates and investor fear.

Since December 2021, the Bank of England has raised interest rates 11 times in an attempt to limit surging inflation, which has pinched living standards. However, the increases have resulted in greater finance costs for businesses.

"The bar on capital has been raised, from an era where there was (effectively) 0% interest rates and relatively easy access to cash and capital," said TS Anil, CEO of British digital bank Monzo, at the Innovate Finance conference in London.

Anil believes that last month's banking sector instability, prompted by SVB's bankruptcy, might lead to a major knock-up in the digital finance sector.

Last month, trade association Innovate Finance warned that Britain's digital banks will require assistance in the coming months to deal with the market repercussions from SVB's failure.

Tim Levene, CEO of fintech-focused investment firm Augmentum, told the event that there would certainly be more suffering ahead and that start-up values will suffer more.

According to The Financial Times, the Bank of England is contemplating overhauling its deposit guarantee system, which may involve increasing the amount guaranteed for companies if lenders fail.

CEOs of digital banking firms said they were optimistic the sector could weather the current economic storm, but that pressure was mounting on business models.

According to Lisa Jacobs, CEO of fintech Funding Circle, most of the digital finance business has only experienced low-interest rates, but she is convinced the industry can still demonstrate its worth.

(investing.com, reuters.com, financialtimes.com)