The UK is renowned for its financial services industry – contributing £275bn to GDP in 2022 alone. This also provides an ideal ecosystem for its financial technology (fintech) sub-sector, where a range of exciting startups and early-stage companies and breaking new ground with innovation. Below, our team at Bure Valley Group offers an updated industry report on fintech including market overview, key players, new entrants, trends, opportunities and risks for investors to consider in 2024.
Market Overview: fintech
The global fintech market is currently similar in size to the entire UK financial sector. In 2022, it was estimated at $257bn and is projected to expand to $882bn by 2030. This represents a compound annual growth rate (CAGR) of 17%. Certainly, a three-times growth market potential is something that investors will want to take a look at.
Fintech is not always easy to define. After all, computer programming and software have been used for many years already within banking. However, a fintech business tends to lean more heavily on technology for its value proposition compared to traditional models. Underneath these solutions are rapidly evolving technologies such as machine learning, artificial intelligence (AI), robotic process automation (RPA) and blockchain.
Key Features, benefits and trends
For consumers, fintech offers a range of advantages such as saving time, reducing fear and stress, saving money and granting more control over financial affairs. Fintech businesses take many forms including those focused on digital payments, personal financial management (PFM), lending, wealth management and “embedded finance” (e.g. financial services which are integrated into everyday experiences using non-financial products/services – such as Shopify).
Recent developments in regulations have encouraged a surge in fintech activity, growth and innovation. In particular, the introduction of “open banking” has encouraged the sharing of financial data between banks and third-party service providers using application programming interfaces (APIs). In the UK, this was reinforced by a ruling from the Competition and Markets Authority (CMA) which forced the country’s nine largest banks to share customer data with licenced startups, down to the level of transaction.
There has also been a cultural shift towards greater acceptance of digital payments by customers and firms. Indeed, in the UK alone, the total transaction value of digital payments has a 9% projected CAGR between 2024-2028, rising to US$724.30bn by 2028. Within this market, digital commerce currently dominates in 2024 with a value of US$335.10bn.
The advancement of blockchain and cryptocurrency technologies is also playing a key role in fintech growth. Traditional banks and financial institutions have long relied on private servers to store customer data. Increasingly, however, customers are demanding greater transparency and efficiency. For instance, many people wish to move money abroad without costly intermediaries. Here, blockchain is disrupting by reducing the need for intermediaries clearinghouses, auditors, reconciliation agents and other traditional finance models.
Key players and new entrants
The UK’s largest banks have taken notice of the growth in fintech, with many keen to reposition themselves to new and existing customers. However, it is difficult for traditional banks to completely lean into the likes of blockchain and a “tech-heavy” approach, due to established business models and customer preferences (e.g. many older people still prefer to have a local branch). For other demographics – e.g. younger people who are confident with cloud-based technology -, however, fintech can offer a very attractive proposition.
Some of the largest fintech providers in the UK right now include Revolut, Starling Bank, Monzo, Atom, Wise and LendInvest. However, new companies are emerging regularly in the UK with unique propositions – often to serve niche markets. Updraft, for instance, offers a consumer lending platform which can grant access to lower-cost credit, with zero early settlement fees. It does this by using AI to conduct more accurate credit reports. The company recently completed its Series D funding round, totalling £272 Million. Another interesting case study is Perenna which focuses on mortgages. Its headline proposition is “teaser rates, no rising payments, no shocks”. It recently finished Series B funding by securing £42m of investment.
Risks & opportunities
Fintech companies can present investors with various risks that are important to work through during the due diligence process. Their heavy reliance on technology can be problematic if disruption occurs (e.g. a website/app crash) and cybersecurity can be a concern – especially where fintech providers are relying on API integrations with third parties. Fintechs may be reliant on partnerships with traditional players and the regulatory landscape could shift in threatening directions – for instance, tightening data protection laws which could restrict data sharing.
However, if founders can alleviate investor concerns on these issues, then fintech opportunities can be considerable. It could grant access to untapped markets with immense growth potential. There might be global expansion opportunities previously unavailable to traditional financial institution models. Fintech companies also tend to be at the forefront of innovation which can offer excitement and a sense of purpose to investors. They can also enhance portfolio diversification by offering investors more choice in financial services such as wealth management, insurance, lending and payments.
Invitation
Fintech continues to make strong advances in the UK in 2024, with many tailwinds fuelling growth (e.g. open banking and the government’s current consultation on AI).
If you are interested in expanding your portfolio into these kinds of exciting spheres of investing, then we invite you to get in touch with us here at Bure Valley and to consider joining our exclusive investor network:
+44 160 334 0827
