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Every time you tap into the tube with Apple Pay, charge an Uber through to a stored credit card or chat with your bank’s virtual assistant, you’re casually using some of the technologies that completely redesigned the financial landscape in the last decade.
Fintech has become a part of daily life for 46% of the global population, with adoption rates in 2019 alone rising 64%. In fact, according to Ernst and Young’s 2019 Global FinTech Adoption Index, about 75% of consumers used some form of fintech service for money transfer or payment processing that year. So, while you may have yet to swap out your high street bank account for a newer, trendier, tech-first version, you are shaping the future of fintech every time you move money.
Keep reading to find out how fintech has evolved, and why it’s a hotbed for venture investment.
💡 Fintech for all
The word fintech didn’t actually make it into the dictionary until 2018, and when it did, it was mostly a buzzword referring to the handful of Silicon Valley startups going up against big banks in the wake of the 2008 financial crisis. However, the concept of financial technology has actually been around for a lot longer than that. Its history dates back to Barclay’s launch of the ATM, the rollout of signature verification technology in the 60s, and even the formation of the Nasdaq in 1971 – all technologies that transformed the way modern financial systems function. Fast forward to today, and the term has become an integral part of the financial industry, and an asset for both the challengers and the incumbents that operate within it.
It’s important to note that fintech is not just a modernised take on traditional finance – the two are very much intertwined. Some of the biggest incumbent financial institutions in the world have adopted a fintech focus over the last few years. According to PwC’s 2019 survey, 48% of financial services firms have adopted technology into their strategic operating models, and fintech has been just as important for their operations as for their balance books. JP Morgan for example, invested $25M into fintech startups in 2019, and based on the below graphic from Deloitte’s Fintech Report, there has been no shortage of fintech investment opportunities for VCs and investment banks alike in recent years.
Among these is fintech’s posterchild Revolut, which within four years of launch in 2015, became the UK’s most valuable fintech after closing a funding round that tripled its value to £4.2B. There’s a reason companies like Revolut have stolen the spotlight – challenger banks are not constrained by the same complex, resource-heavy structures as their more established counterparts. They’ve refined their customer offering through a seamless UX, fee-free forex, quasi-instantaneous money transfer and simple financial management – all for a fraction of the cost of competitors. And they’re growing fast….as of January 2021, there were 94 unicorns in the fintech space, which remains the UK’s epicentre for venture capital investment. In 2019, £1.49B was invested into London-based fintechs alone, second only to Silicon Valley.
💡 Beyond banking
When you think fintech your mind probably jumps to neobanking, but that’s just the tip of the iceberg. There are 1,370 fintech companies in the UK that have collectively raised more than £14.9B in investment to date, each of which fits into one of two categories: financial services (think investment, wealthtech, insurtech, lending), or technology processing services (software as a service). 2021’s top raises so far in the financial services category include trading app Robinhood which raised over $2.4B from Ribbit Capital, Sequoia Capital and others. Buy-now-pay-later service Klarna also raised a behemoth $1B round led by Sequoia Capital, and BlackRock. On the processing side, the funding rounds tend to be smaller, as these firms are less capital intensive to run than their customer-facing counterparts. Online payment processing system Stripe and AI-powered risk management solution 4Paradigm topped the list in the processing category following their respective $600M and $700M series D rounds. The investment outlook throughout the remainder of 2021 bodes well, with fintech funding more than doubling quarter-on-quarter.
2021 has been an impressive year so far in the way of exits as well. M&A and IPO activity in the sector reached an all time high in Q1, with highlights including installment lender Affirm and health insurtech Oscar listing publicly, and trading platform eToro’s $10.4B merger with Fintech Aquisition V. Amidst the post-pandemic trading surge, rival retail investment platforms Robinhood and eToro also announced impending IPOs.
CBInsights’ 2021 report shows the trajectory of fintech exits:
💡 So, now what?
While 2020 was a challenging year, investors retained confidence in fintech, with investment rising 14% from 2019 levels. Fintechs offering mobile banking, payment and lending solutions witnessed record adoption rates, and financial app usage in Europe surged 72%. With the e-commerce space growing faster than ever post-pandemic, and over 70M cryptocurrency wallets worldwide, the opportunities for the fintech solutions that can facilitate this ecosystem are endless.
Some of the biggest players in the market have already tapped into the power of crowdfunding to scale up their brands, allowing retail investors to share in their growth. At Seedrs, we’ve executed over 160 fintech fundraising rounds to date, with 30% growth over the last two years. Some of our top rounds include insurtech Snoop which raised over £10M from over 1,600 investors and cryptocurrency platforms Ziglu (£6M from over 1,100 investors) and Crypterium (£3M from over 2,700 investors). We’re looking forward to funding even more businesses innovating in this market in the future.
Fintechs have banked the unbanked, democratised investment and helped money move around the world quicker and more seamlessly than ever before.
More than 47,000 Seedrs investors have diversified their portfolios with venture capital investments in this space. Have you?
To browse live and Secondary Market opportunities and keep up on the latest news in fintech, visit our dedicated sector page here.