Amongst the many shocks of 2022, the bursting of the FinTech bubble will likely be at the top of the pile for investors. We liken this to the DotCom crash of 2000. However, as we saw with the Internet sector in the following two decades, we believe 2022 has helped to weed out the weak business models in the FinTech space and showed the resilience of the rest of the vendors, which are focused on profitable growth.
The current market malaise masks the opportunity presented by the vibrant UK FinTech sector. As such, we take a positive stance on the sector, and shine a light on some of the key themes and points of debate.
UK IS A FINTECH HUB. Plaid estimates 84% of UK consumers used FinTech for money management in 2022. We believe that the high FinTech penetration in the UK is a result of the superior quality of offerings provided by FinTechs vs the incumbent banks. From Wise to Revolut, Worldpay to Checkout, the UK continues to produce world-leading, best-in-class FinTech unicorns and ‘decacorns’. The UK’s leadership in the FinTech segment is underpinned by the high demand for FinTech services, world-class talent, supportive regulations and policies, as well as strong levels of investment.
KEY THEMES FOR 2023. We see strong growth tailwinds for the UK FinTech sector, aided by several secular themes:
(1) Specialised FinTechs, addressing specific verticals, customer groups and functions, have the potential to dominate in their niches and use that as a springboard to expand into adjacencies;
(2) B2B FinTech, solving pain points for small businesses;
(3) Integrated Platforms, where Software and Embedded Finance allow companies to capture more value and unlock new revenue streams;
(4) Evolution of Open Banking into Open Finance, with the accompanying change in the way we pay, whether by Request
to Pay or Variable Recurring Payments; and
(5) RegTech, becoming mission critical in the wake of rising incidence of fraud and growing costs of compliance.
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