The growth of fintech companies and the technology these companies have developed has been significant in recent years. It’s a sector which has played an important role in growing the UK economy and this month the CBI has unveiled a major new campaign to entice more businesses to use fintech to fuel growth, it believes that fintech offers a £32bn revenue opportunity to business.
It has also seen a huge amount of investment from venture capital investors (such as ourselves) and has transformed the way that both consumers and businesses can manage, protect and grow their finances. The number of unicorns in the sector is testament to that (unicorns are defined as privately owned, VC-backed companies valued at $1 billion or more). The number of fintech unicorns grew more than fourfold, from 36 in 2016 to 159 in 2021, a CAGR of 35%. In addition, the number of digital banking unicorns rose from two in 2016 to 18 in 2021; wealthtech went from four unicorns to 22 during the same period.
But fintech isn’t a catch all term – it’s a really broad sector that encompasses a range of businesses that are all serving a different purpose or fulfilling a different need. So, what is driving this growth in the sector and how are fintechs challenging the more traditional financial services models in the market?
Is financial technology in demand? How fintechs have helped to democratize financial services
The UK population has increasingly turned its back on traditional forms of financial services including payment solutions and has moved towards digital payment methods. While this does not mean that everyone is using or able to use such technologies it does reflect the growing role that fintech is playing in the financial lives of UK consumers.
One thing that has impacted consumers adoption of fintech solutions has been the Covid-19 pandemic, research from Nucoro, a London-based fintech company, suggests that between mid-March and mid-April 2020, around 12% of the UK population (about 6 million people) downloaded their bank’s app for the first time.
There has also been a surge in the popularity of retail trading platforms and apps during the pandemic. By September 2020, 3% of the population (two million people) were reportedly using Open Banking-enabled services. The FCA meanwhile estimated that 1.9 million adults in the UK owned cryptocurrencies at the start of 2020, while a further 700,000 had previously done so.
While the adoption of fintech technology has grown significantly in recent years, it has also led to a democratization of financial services solutions – now more people than ever are able to access services such as wealth management tools that previously would have been out of reach for them. As a venture capital investor that has made a number of financial technology investments we under how impactful these brands can be in changing the face of financial services.
For example, one of the companies in our portfolio is Moneybox, the savings and investing app. It enables anyone to invest from just £1 (up to £20,000 per year with tax free gains), buy a home (through products such as the Lifetime ISA) and invest in a pension. Its growth has been significant since its launch in 2016, the platform currently supports 800k+ customers and has more than £2.9bn in assets under administration, growing by more than >100% YOY. It has recently secured £25m in Series D funding to grow the business even further.
Making people’s lives easier – financial technology investment
One role which fintechs are increasingly fulfilling is to make our lives easier – providing technology and services which enable people to more efficiently and effectively manage their finances. One such company that is on a mission to simplify financial services for its customers and has benefited from significant financial technology investment is Curve. The app enables its customers to manage all their cards/bank accounts on one Curve card – including loyalty and reward cards to simplify everything about both spending and managing their day to day finances. It also offers a rewards scheme for Curve customers to earn money on their everyday shopping habits through cashback offers and last year launched Curve Credit, the rival brands such as Klarna. The brand has a loyal following and in 2021 raised £10m in the largest every equity crowdfunding raise on Crowdcube.
Challenging the industry giants
Increasingly, as fintech brands have begun to dominate the financial services sector they have challenged the dominance of industry giants. This isn’t just true of the banking sector, where challenger banks have swept in to challenge the high street banks but in the broader market as well. Hometree is an early stage company that has set out to take on the industry giants in the energy and home cover sector. The brand exists to help homeowners keep their homes warm, safe and working and its on a mission to be the leading provider of peace of mind & sustainability focused home services, it is on track to covering millions of homes in the coming years. The company believes that home cover sold by the traditional providers is broken and isn’t fit for purpose, it’s re-thinking the industry from the ground up – with the customer at the heart of everything they do.
So, why is financial technology important to our future? Over the last decade, fintech has dramatically changed the financial services landscape and there’s no going back. The technologies that have shaped the growth and adoption of these fintech businesses are being enhanced everyday and the demand from venture capital investors to support the growth of these businesses shows no signs of waning. As investors in financial technology companies, we’re looking forward to tracking the growth of this sector going forwards and the technology that is likely to shape this development.