In our previous post on the UK Fintech ecosystem, we looked at the demand for Fintech solutions as a key growth factor to its thriving financial technology industry.
In this post, we’ll take a deeper look at how a healthy capital investment outlook can really push an industry to new heights.
Fintech startups need investment (in the form of seed investment rounds from Angel or VC investors) to bring their ideas to life and their innovative products to market, while more established players need further investment rounds (perhaps from Private Equity firms and VC’s) to expand their product offerings into more markets.
Typically, the more investment there is in a market, the more investor confidence will grow and the more stable the market will become, which, in turn, will then again lead to more investment into the market..
This growth loop is exactly what we are seeing in the UK Fintech sector.
In the report published by GOV.UK’s Department for International Trade, they highlight that more Fintech investment poured into the UK in 2017 (£1.34 billion to be exact) than anywhere else in Europe.
But the first half of 2018 completely overshadowed this amount. According to figures released by KPMG, the UK saw an influx of $16 billion (around £12 billion) Fintech investment in the first six months of 2018, more than half of the $26 billion total for Europe, and well above the $14 billion of the US.
Vantiv’s acquisition of WorldPay (a leading global e-commerce, omni-channel payments platform), did, however, have a majority influence on this figure, as that transaction made up $12.9 billion of the UK’s $16 billion total.
In addition to total number of Fintech deals, the UK is also among the top countries when it comes to the concentration of Fintech unicorns (startups with a value of $1 billion or more), with companies such as Funding Circle (peer-to-peer lender for business loans), Revolut (a digital alternative banking platform that provides services such as Free international money transfers and fee-free global spending) , TransferWise(leading online international money transfer app that’s cheaper and faster than traditional banks) and Atom Bank (digital only bank designed specifically for easy smartphone and tablet interaction and integration) making up part of its unicorn population.
A very liquid VC market means that the London Stock Exchange (LSE) has played host to some of the world’s biggest Fintech IPO’s (Initial Public Offerings), including the £2.48 billioncapital that was raised in WorldPay’s 2015 float.
This liquidity in the investment markets means the LSE continues to play a key role in attracting Fintech startups from across Europe who wants to scale and grow their operations to international levels in the UK.
The UK also has one of the largest communities of Angel investors with over 160 member organisations and 18,000 investors, according to the UKBAA (UK Business Angels Association). Together these organisations and individuals invest a combined £1.5 billion per year in startups and early-stage companies.
Finally, the government’s favourable tax treatment for companies that invest in startups only adds to UK’s Fintech investment prowess. The Seed Enterprise Investment Scheme (SEIS) from HMRC’s, for example, qualifies investors for a 50% relief on income tax and an exemption from inheritance and capital gains tax.
All this provides a fairly good reason to why more than 60% of Europe’s Fintech startups are now based in the UK and expected to contribute £300 billion to the country’s economy by 2020.
In the next article, we’ll look at how the UK’s forward-looking regulatory landscape and robust digital infrastructure keep Britain on top in the Fintech rankings.
You can download the full GOV.UK Fintech report by clicking here.