In 2020, Revolut co-founder and CEO Nikolay Storonsky was named by the Telegraph as the UK’s first fintech billionaire. The challenger bank – the most-funded UK start-up of last year – netted $446m, achieved a valuation of $5.5bn, and broke even for the first time in November. Revolut’s success in the face of the coronavirus crisis, during which its revenues dropped by 40 per cent, is testament to a burgeoning financial technology sector.
But if you go by the investment trends, it might look like the headwinds from Covid-19 and Brexit have knocked confidence in UK fintech. The sector attracted a total of $4.6bn of investment in 2020, down almost a quarter on 2019. This was the largest fall for any tech sub-sector, according to data from Tech Nation.
The decline, however, has more to do with 2019 being a blockbuster year than with the economic crisis. That year, Japanese conglomerate Softbank pumped $1.5bn of venture capital into supply chain financing specialist Greensill Capital, which recently filed for administration and has been at the centre of a lobbying row involving former UK prime minister David Cameron.
This accounted for a quarter of all UK fintech investment in 2019. In addition, some start-ups ready to scale up have turned to alternative financing, potentially deflating venture capital investment figures. Examples include SME lender Iwoca and digital mortgage provider Molo, which raised over $250m and $300m respectively in debt finance last year.
Throughout the pandemic, UK fintech start-ups and scale-ups have continued to be global heavyweights. The collective valuation of fintech unicorns – companies valued at $1bn or more – rose to an all-time high of $30bn, placing the UK second for the first time, ahead of China and India, according to data from CB Insights.
The first slot is taken by the US. Fintech companies also continue to net some of the biggest bets from investors, accounting for a third of funding rounds of £50bn or more in so-called “megadeals”, according to Beauhurst data.
The London Stock Exchange welcomed one fintech listing in 2020, Kazakh payments platform Kaspi.kz, which was consistent with its performance since 2015. But, as the government-commissioned Kalifa Review into fintech recently noted, the exchange accounted for just 6.7 per cent of main market listings over the past six years, a third less than would accord with the UK’s overall market share.
The US continues to dominate the sector globally, widening its lead over the UK in 2020 with a 14 per cent increase in IPO listings on its leading exchanges and a 12 per cent surge in venture capital investment. Three of the top five fintech hubs are in San Francisco, New York and Menlo Park. Two of these experienced accelerated growth in funding over the past year, according to Tech Nation.
Meanwhile, investment in London, which is home to around three-quarters of the UK’s venture capital-backed fintech companies, fell by more than a fifth.
The data points to an intensifying global race for first place. “For the UK to retain its position as world leader and continue to attract investment into the sector,” writes Catherine McGuinness, policy chair at the City of London Corporation, “it is vital to offer an environment which supports innovation.”
This article originally appeared in the Spotlight supplement on fintech. You can download the full edition here.