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The financial sector has been one of the UK’s economic strengths for some time now. In 2019, around 6.9% of total economic output was attributed to the sector (£132bn) and includes sectors like accounting, asset management, financial planning and banking. In 2021, however, tech is playing an increasing role in transforming UK financial services – also presenting some attractive opportunities for investors. Below, our team at Bure Valley Group explores this in more detail.
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Why UK fintech matters
The UK government seems to recognise that financial services will be vital in the coming years to the economy – especially as it navigates its path post-Brexit and (hopefully) post covid. On the 19th April 2021, for instance, Chancellor Rishi Sunak attended UK Fintech Week where he confirmed that the government would be adopting key industry recommendations to support UK fintech growth. These include enhancing the role of the Financial Conduct Authority (FCA) so it can help financial firms develop Distributed Ledger Technologies (having helped 137 firms so far, already). The Government has also signalled that it will introduce a fast-track visa scheme for fintech firms looking to recruit specialist talent from overseas.
The important thing to recognise is that, in many spheres of financial services, fintech has now moved from being an option to a requirement. Banks, for instance, are now looked at as strange if they do not have a mobile banking app. Increasingly, customers expect to be able to insure, access and pay online. 70% of UK consumers now use at least one fintech firm’s services, and the UK is now recognised as Europe’s top destination for fintech venture capital investment – attracting $4.1bn in 2020 alone. Clearly, UK fintech has a promising future ahead, and investors will likely want to take note for their portfolios.
The global view
It isn’t just the UK that holds opportunities for investors. The global outlook appears positive as well. In 2018, the global fintech market was valued at $127.66 and is expected to grow at a CAGR of 24.8%, to $309.98bn by 2022. The key growth factor appears to be large investment in technology-based solutions by banks and other financial businesses. The worldwide fintech market can be categorised in a variety of ways such as technology, regions and services.
For technology, fintech encompasses the likes of AI (artificial intelligence), API, distributed computing and blockchain. For regions, important segments include North America, Europe, South America, Asia-Pacific and Middle East and Africa. Asia Pacific has led the way for some time, with 49.45% market share in 2019. Services can include banking, asset management, credit scoring, compliance management, crowdfunding platforms and mobile payments.
Current players & new entrants
Fintech covers a broad range of financial services, as shown above. It can be difficult to clearly delineate which companies should be included due to blurred lines. However, widely-recognised major players include Ant Group (Ant Financial and Alipay), PayPal, Google Pay (Alphabet), Grab and GoJek. Some newer entrants include TransferWise, Robinhood and N26. Ant Group, for instance, is a Chinese digital payment platform with over 1bn customers and over 80m merchants. Westerners can struggle to invest in Ant Group since it is not listed on exchanges in the US; although it may be possible to invest in the Hong Kong listed shares via your broker. In the case of smaller, US-based fintech firms like Robinhood, however, it is easier to invest in the shares using a trusted platform.
Fintech startup investing
For angel investors and other early-stage investors, the real interest lies in fintech startups – where significant growth and capital gains could be achieved. A range of interesting companies have emerged in the UK in recent years, which are certainly worth considering.
- eToro. Retail investors are looking for easy ways to trade stocks, crypto, ETFs and other assets online. eToro allows investors to do this via its platform using a “social trading” approach. It has raised over $162m in five funding rounds so far.
- Bought By Many. Now the UK’s largest “insurtech” business, this company allows people to engage in pet insurance and wellness policies, digitally. As of June 2021, Bought By Many is valued at over $2bn, making it a “Unicorn”.
- Canaree. This is a financial modelling and forecasting tool requiring very little code. It was founded in 2019 in London, raising £500,000 from the UK government’s Future Fund pandemic funding in July 2020.
- Thought Machine. Founded also in London, this time in 2014 by four ex-Google employees, Thought Machine released its VaultOS banking vault in 2016 – offering it to high-profile brands such as IBM and Lloyds. In 2020, the business secured $125bn in Series B funding.
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