Investment Summary
FinTechs are ‘embedded’ in our day-to-day lives. Whenever you use your contactless card to pay for your morning coffee, verify your identity online while registering for a new service, or save up for retirement, in all likelihood there is a FinTech out there making it all happen. This growing ubiquity is also evident in market penetration numbers: FinTechs have 21% market share of UK SME banking customers, while cross-border PayTechs hold 8% of the remittance market.
FinTechs operate in a multi-trillion pound market, and the UK has the privileged position of being home to 2,500+ FinTech companies across a variety of specialisations (banking, lending, investment, insurance, payments, financial services infrastructure and regulatory compliance). At our conference, we explored the future of FinTech, and came away even more enthusiastic about the space than we were before.
Early signs of recovery in UK FinTech: In 2022, global FinTech investment declined by c.31% after a record year in 2021. At the same time, publicly listed FinTechs globally have seen 30-40% share price declines. Despite the tepid market backdrop, investor interest in the UK FinTech space has intensified of late. For instance, in April 2023, Network International received multiple potential takeover bids from Private Equity (for $2.7bn, vs the undisturbed market cap of $1.6bn), while Quantexa raised $129m Series E funding at a valuation of $1.8bn (>2x its Series D valuation). Valuation multiples remain compelling, and we believe this is the right time to invest in FinTech.
Key themes we discussed at the conference: We discussed a plethora of contemporary issues in FinTech, including:
- New frontiers in PayTech, such as Converged Commerce™, Request to Pay (RtP), rise of local payment methods, payments orchestration to reduce costs and improve acceptance;
- Latest developments in cross-border payments, such as ISO 20022 go-live, linking of real-time payments systems, and crypto for cross-border;
- What makes the Neobank tech platform and value proposition so much more compelling vs legacy banks, Neobanks’ path to profitability, and thoughts around public listing;
- How incumbents can use Embedded Banking to overcome the limitations of their legacy tech stacks and compete with digital-first players;
- How integrated platforms drive significant value creation for all stake holders; and
- The ways in which RegTechs are redefining market boundaries by leveraging their core capabilities in adjacencies.
As the sector is still in its infancy, the majority of the companies are privately owned. Amongst the listed names, we are positive on Alfa, Boku#, Equals Group#, Eurowag# and Network International, driven by their large and growing TAMs, strong competitive positions and attractive financial metrics. On the private side, we believe the best way for public investors to gain exposure to the various themes of FinTech would be through Augmentum Fintech#, a dedicated FinTech venture fund.
