A world of opportunity and growth: FinTech Investment in 2019
By Rolf Merchant: Senior Manager, Business Development
This week, Innovate Finance launched its annual FinTech Investment Landscape report, our review of the previous year’s investment numbers and trends.
The analysis provides a global picture - but since our work focuses on supporting UK FinTech, we’re always most excited by the British numbers! 2019 brought us reasons to be cheerful, with overall investment in the UK up 38% and many of Europe’s biggest raisers being headquartered here.
Numbers do tell a good story but you have to turn to industry experts for richer analysis. To add flavour to the data, we spoke to the VC firms in our network to understand what’s happening in the sector and get a sense of what 2020 has in store.
UK FinTechs finish the decade with investment boost
The UK smashed its previous record for FinTech investment, notching up $4.9 billion of capital raised in 2019. Surpassing 2018’s figure of $3.6 billion, the UK moved up to second in the global rankings for VC investment into FinTech.
This achievement is amplified given Britain’s economic growth was, like much of Europe, a disappointment. Then there was the “B” word that brought political paralysis and the nervous unpredictability of a General Election.
“The fintech sector continues to go from strength to strength,” said Tim Levene, CEO of Augmentum Fintech. “Despite huge growth, the opportunity is still nascent and there are still significant capital requirements, particularly at the mid- and late-growth stages, which is only growing in demand as FinTech companies are staying private for longer.”
Ben Marrel, Co-Founder and Managing Partner of Breega, pointed to Open Banking creating a raft of new FinTechs ready to scale. “These new actors, whether they be challenger banks, consumer-orientated fintechs or providers of business solutions are challenging and disrupting a whole range of financial sectors.”
Tim Levene’s view is highlighted by the enormous sums raised in 2019’s mega deals by UK FinTechs. Greensill led the way with its huge $800 million round. OakNorth and Checkout.com were the next biggest fundraisers, picking up $440 million and $230 million respectively.
The European capital for capital
The UK remains the heart of FinTech in Europe. FinTechs in the UK attracted more capital and completed more deals than the rest of the top 10 European countries combined. Seven of the top 10 deals in Europe involved UK FinTechs.
Though the UK is leading, that’s not to say there isn’t impressive growth in other parts of Europe. Total investment in European FinTech reached $8.5 billion, up from $5.7 billion in 2018.
Ben Marrel credited rapid technological change and uptake, combined with regulatory shifts like PSD2, for creating “a very fertile environment for FinTech in Europe.”
There were three massive deals for European FinTechs in 2019: German challenger bank N26 raised $470 million in a Series D round; Swedish headquartered Klarna raised $460 million, and Berlin-based InsurTech WeFox secured $235 million in its Series B.
Ben reflected, “if progress across the different countries is not, as yet, completely homogeneous, markets are progressively opening and allowing for a wealth of innovation and new actors.”
US takes the global crown as China drifts downwards
The US and China have been vying for top spot in the last five years.
In 2018, China was top of the global rankings by some margin with $26 billion of investment into FinTech, buoyed by the giant $14 billion Ant Financial investment, but saw a dramatic drop to $1.8 billion in 2019. Meanwhile, the US experienced 23% growth reaching $16.3 billion.
The sharp decline in China seems to be a major driver for the global investment figure dropping 28% on 2018 to $35.7 billion.
Nonetheless, there is strong growth in other markets. Indian FinTech investment reached $3.8 billion, bringing it to third in the world. Brazil more than doubled its investment figure to reach $859 million, taking it to sixth in the global rankings.
The number of FinTech mega deals in 2019 leapt to 86 from 70 in 2018 - a sure sign of a maturing market.
That maturation is coupled with an overall shift in global FinTech innovation, according to Manuel Silva, Partner at Santander InnoVentures. “FinTech went from trying to reinvent the basic pillars of the banking-industry-as-we-know-it to newer innovators focusing on reinventing the boundaries of financial services, as the early players have now overcrowded their niches and banks have reacted competitively.”
So, what’s next?
2019 showed us that FinTech is growing and so is the demand for investment capital in the sector. We expect that to continue into 2020. However the areas of growth will shift, so say the VCs we asked to gaze ahead.
Vinoth Jayakumar, Investment Director at Draper Esprit, said, "We have seen a surge of investments in the B2C side of FinTech in recent years but it is becoming increasingly apparent that the B2B side of FinTech - the invisible layer behind these financial services behemoths – are rising. Three core areas of innovation are likely to be in fraud, payments and core banking systems."
Manuel Silva, from Santander InnoVentures, sees the next wave of FinTech Innovation at the “cross-over of several industries, stepping outside of the banking comfort zone.” This in turn will “redefine the role of corporate investors. Together with a higher bar on financial discipline to align to founders and VCs, giving access to the corporate sponsor is key,” says Manuel.
Ruth Foxe Blader, Partner at Anthemis, is looking for growth in “emerging technologies aimed at improving the financial services infrastructure, including the sourcing and trading of risk.”
Breega's Ben Marrel is also excited by disruption in insurance, “up until now it has known very little change, [but] is being shaken up by the arrival of startups who are developing innovative solutions for individuals and companies and rebuilding traditional models making them more accessible, flexible and transparent".
Finally, Tim Levene thinks there will be more inroads into verticals of financial services that have seen limited change. Tim says that “numerous examples remain of those with legacy tech, sub-optimal customer service and overpriced propositions.” He adds that “the spotlight will remain on challenger banking in 2020.”
Opportunity for investors and FinTechs alike is clearly out there. After another year of growth, there is plenty of optimism.
So let’s make 2020 another record breaking year for FinTech investment!