Why You Should Be Investing in UK Fintech Companies – James Sanders (London Diamonds)

In this article, James Sanders (London Diamonds) looks at why you should be investing in UK FinTech companies and reviews the recent successes coming out of the FinTech industry

The UK has an established history of expertise within the finance industry. In recent years, fintech (financial technology) companies have become more established, receiving regulatory support for open banking, and a growing number of customers moving towards challenger banks and online financial services means there is serious potential for investing.

According to the latest data, the FinTech sector in the UK raised $5.7bn in H1 2021, outstripping the total investment secured in 2020 ($4.3bn) by 34% and breaking the record year set in 2019 ($4.6bn) by 26%.

They say the UK is second only to the US (940 deals and $26.7bn) in terms of funds raised and well ahead of the levels secured by Brazil (40 deals and $3bn), Germany (56 deals and $2.5bn) and India (132 deals and $2.2bn) during the same period.

The Guardian reports that the banking and payments app Revolut has become the most valuable British fintech firm on record after a fresh funding round pushed its valuation to $33bn (£24bn).

The bumper valuation also means the six-year-old firm is worth more than three-quarters of the members of the FTSE 100 stock market index, even surpassing the 294-year-old bank NatWest, which has a market capitalisation of about £23.6bn. It signals growing investment appetite for UK fintech firms.

This is why Innovate Finance say the Fintech sector is booming and why you should be investing in UK fintech companies.

Although Rishi Sunak and the UK government have released a new £375 million Future Fund, Fintech startups may struggle to be eligible unless their technology is as cutting edge as artificial intelligence. This funding challenge will be no problem for many fledgling fintech businesses if the recent funding round of Revolut is anything to go by.

Plenty of private sector investors see the genuine potential for investing in homegrown UK fintech firms.

The Chancellor of the Exchequer has been pushing for reforms that would help convince fintech startups to list on the London Stock Exchange. In doing so, the UK would retain growing firms instead of losing them to other countries once they are large enough to go public.

If Wise, the online money transfer company, were eligible to be included in the FTSE 100, they would place above Rolls Royce.

These reforms would enable founders and pre-floatation investors to retain a majority of voting rights after the public offering, which is viewed as controversial. But more importantly, entrepreneurs and investors are waiting for the UK government to secure greater access to international markets to make it easier for UK fintech companies to go global.

The fintech company Wise, based in Shoreditch (formally TransferWise), decided to side-step the traditional method of IPO (initial public offering) and became a publicly traded company through the direct listing method.

Instead of following the bank IPO book-building process, the valuation was based on the opening auction on the first day of trading. Because wise already successful posting pre-tax profits of over £40m last year, they had no need to raise money. Wise finished its first day trading more than twice its private funding valuation at £8.75bn.

London is fourth for tech VC investment globally behind San Francisco, Beijing and New York at $10.6bn – Technation.io

These examples of success are just the tip of the financial technology industry iceberg. The popularity and rapid growth of digital challenger banks and online financial platforms are why you should be investing in UK Fintech companies and help shape the future of UK finance investments.

About the Author

James Sanders is an active investor in AI technology, gaming, Cryptocurrency and alternative investment sectors. James is also an entrepreneur and Managing Director of London Diamonds.

 

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