Over the past year valuations of the new breed of technology-focused financial services challengers to tradition banks have soared. That was underlined this week as UK-based Funding Circle announced its impending IPO at a proposed £1.5 billion. The company plans to raise £300 million through the placement. And while the UK’s past failure to produce giant technology companies has been well documented, the country’s position at the vanguard of the latest technology in the world of finance might well be set to change that.
A recent KPMG report says that over the first six months of the year, the UK was the world leader in fintech investment. Globally, $57.9 billion has been invested in the sector across 875 deals and the UK accounted for $16 billion of that, ahead of China on just under $15 billion the US on $14.2 billion. The UK’s huge total was achieved in large part as a result of the £9.1 billion acquisition of payments processing company Worldpay by U.S. peer Vantiv. The figures total up investments made in the sector via venture capital, private equity and acquisitions.
The UK has long been a leader in the global financial services but there were fears that the growing influence of fintech had the potential to place that position under threat. However, there are signs that the inverse scenario may unfold, with the current wave of British fintech re-confirming a healthy outlook for a post-Brexit financial centre.
The UK has had a clear strategy of developing an environment conducive to promoting a healthy fintech ecosystem. Funding initiatives and incentives from the government, investment by the country’s traditional financial services companies such as major banks and regulatory stimulus such as the adoption of the EUs ‘open banking’ framework have all contributed.
Other major UK fintechs include the fintech currency exchange and transfer company Revolut, that has now started offering current accounts and debit cards and competitor TransferWise. The former recently raised $250 million at a $1.7 billion valuation, 5 times the valuation its previous raise was made at only a year ago. Last November, TransferWise raised $280 million at a $1.6 billion valuation and were it to return to the market again now that figure would be expected to be far higher.
The Funding Circle IPO announcement has coincided with a spate of other UK fintech investment rounds at strong valuations. Monese, another current account and currency exchange and transfer firm, yesterday announced a $60 million funding round has been closed and Acorn OakNorth, a UK SME and property lending fintech pulled in $100 million at a whopping $2.3 billion valuation. In the wake of that deal, Rishi Khosla, the Acorn OakNorth co-founder and chief executive praised the efforts of the UK government and chancellor Philip Hammond in their support of fintech. Special mention was given to the establishment of regulator ‘bridges’ with other countries.
While it was the Worldpay deal that catapulted the UK to the head of the global fintech investment table over H1 this year, the trend is still strong even when that is taken out of the equation. Minus Worldpay, investment in the sector still saw 40% growth and attracted 10 times the investment of German fintechs and 20 times more than French peers.
The level of investment is being considered a strong sign that capital is willing to bet that the UK’s fintech sector will move from strength to strength despite the cloud of Brexit that still casts a shadow and leaves several unanswered questions. Fintech challenger bank Mozo, for example, has said that Brexit meaning access to EU clients is cut off would be little more than ‘an irritation’ that will be remedied by the acquisition of a banking license in Ireland.