Fintechs – Why do Investors find them so Irresistible?

The UK is home to four fintech unicorns (companies that are valued at least a billion dollars). They have a total valuation in excess of $18.5bn. So you’d be right to assume that investors are still showing a lot of interest in fintechs. Although interest in UK fintech companies waned in 2016, it resurged in Q1 of 2017, with a total investment of $328m.

Seedrs, recently featured on the coveted FinTech50 2017 list, has played a part in the success of the UK fintech scene. It’s helping to raise investment for leading fintechs, such as:

Revolut – an online challenger bank designed for people with a global lifestyle. It offers free international money transfers and fee-free global spending – at the real exchange rate. As part of the company’s £50m Series B they invited customers to invest alongside Index Ventures, Balderton Capital and Ribbit Capital. More than 4,300 users invested in the £3.8 million round on Seedrs.

Landbay – a leading peer-to- peer lending platform for residential buy-to- let mortgages, matching investors with borrowers. With strategic partners and investors Zoopla on board, the company is poised for continued success in the p2p space. To date, they’ve raised almost £5 million on Seedrs alone.

WeSwap – The world’s first peer-to- peer travel money exchange platform has raised £3.5 million on Seedrs. With just under 3,000 investors (including Andy Murray), the company broke the record for the highest number of investors for an independent business fundraising on a UK equity crowdfunding platform in 2016.

Wealthify – And it’s not just happening in London – Wealthify is the easy-to- use online investment service based in Cardiff. Using advances in digital technology, it automates and simplifies investing. The company has already raised almost £1,8 million on Seedrs alone.

So fintechs aren’t just of interest to professional investors, but also the mass affluent, who’re likely to be or become customers and top advocates.

Five emerging trends for fintechs

From the campaigns we’ve seen and our experiences in the finance space, there are a few trends emerging to look-out for over the next year:

1. Mobile payments could become the norm

Many fintech startups are focused on mobile purchasing, banking and currency exchange, such as Revolut, with the aim of making it quicker and cheaper by removing cumbersome middlemen.

2. Security may be beefed-up

ID confirmation of the account holder via fingerprint recognition is already becoming common place via mobile devices. The next wave could be a solution that authorises payments using wearable tech. This could recognise the account holder’s heart beat rate or via images, such as with PixelPin.

3. Blockchain technology could become widely used

Not just about trendy and controversial cryptocurrency. Blockchain keeps track of each and every digital exchange of currency, reducing the risk of fraud.  More and more blockchain businesses are starting up. There’s even a UK-based  accelerator focusing on this, called Coinsilium.

4. Artificial intelligence will really break through

AI chatbots like Plum turn big data into meaningful information for investors and savers. These platforms are leading the way in transparency and customer engagement.

5. Mainstream financial service providers will partner with challengers

Traditional banks will increasingly look to work together with fintechs. Sounds unlikely? It’s already happening. NatWest and Royal Bank of Scotland have already invited us to join their select panel of alternative funding solutions as their equity funding partner in the Capital Connections programme. More high street players will likely look to partner with challengers to fill gaps and evolve their own offerings.

The opportunity for fintechs offered by Brexit

If Brexit could pour cold water on fintechs, there’s no sign of it happening just yet – on either side of the channel, according to KPMG.

Investors based in mainland Europe invested $212 million into UK fintechs in the first quarter of 2017. And UK investors put $428 million into fintech startups based in continental Europe. Brexit certainly doesn’t seem to be affecting Seedrs so far, with plenty of opportunities for investors on both the continent and the UK.

Although there’s uncertainty about what Brexit means for the fintech sector, many believe it could actually help the UK drive the next stage of financial innovation. After all, unlike traditional banks with their physical presence, fintech startups aren’t usually constrained by geographical borders because they’re online. What’s more, growth areas such as virtual currencies, blockchain and P2P lending are not covered by EU directives. So they won’t be affected by the loss of passporting (the right for a firm in the European Economic Area to do business in any other EEA state without further authorisation).

A positive impact?

The UK has spent decades building up a welcoming regulatory environment, especially for fintech. So although Brexit could lead to financial regulation changes, many don’t expect it to have a negative impact on financial startups. Some even think it could have a positive impact with all sorts of possibilities, including:

  • Leaving the EU could enable the UK to reform dated regulations.
  • We could get regulations implemented quicker than the EU.
  • The Financial Conduct Authority could make fintech regulation even more welcoming for firms.

Dominic Hill, a partner at law-firm Hogan Lovells, was quoted at the Fintech Connect conference. “In a lot of areas the UK has proved to be a testing ground for regulation before they’ve been embraced by Europe as a whole. Even after Brexit I think there is a possibility that the UK can continue to be a proving ground for new technology and regulation.

With so much happening in the fintech sector, there’s no wonder it’s such an area of interest for investors.

By Tom Horbye, Head of Campaigns at Seedrs

Author: Dylan Jones

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