Article originally appeared in Finextra on 11th March 2016
Is London’s much-lauded fintech scene overhyped? New figures suggest that the value of UK and Ireland financial technology investments grew last year at a far slower rate that the general tech scene. Fintech has built a reputation over the last couple of years as one of the world’s hottest sectors, promising to transform the world of financial services. And with London’s status as a global financial centre and strong government backing, the UK has long been touted as a hub for all things financial technology.
Yet new figures from corporate finance advisor Ascendant suggest that fintech is far from dominating the UK and Ireland technology market. The firm says that in 2015, 71 UK and Irish fintech firms received £544 million in venture/growth capital from a total of 99 investors.
This means that fintech companies represent a solid but not spectacular 21% and 19% of the value and volume of the whole tech market. Perhaps more noticeable is that while the volume of fintech deals was up an impressive 87%, the value of those investments rose only 29% on the previous year, compared to 76% for the tech market as a whole.
This is because – despite huge rounds for the likes of Atom, Funding Circle and World Remit – two thirds of fintech financings were minor, raising less than £2 million. Not surprisingly, this is reflected in the investors who are backing these companies – primarily small VCs and European investors.
Private investors are backing fintech but at much lower levels than in the market as a whole, with Ascendant arguing that many key Series A investors have already committed to specific companies in the sector and are therefore not particularly active.
“More worrying, is the fact that major financial institutions are almost invisible as investors in the sector – the only majors to participate in 2015 were Baillie Gifford, Goldman Sachs, BBVA, BlackRock and CommerzVentures.”
London’s dominance is also flagged as a concern. Despite Dublin’s efforts to build a presence and Innovate Finance’s plans to connect London with regional hubs, the vast majority of fintech deals involve startups in the UK capital.
The Ascendant figures come just a day after a report from KPMG and CB Insights revealed how Europe is lagging behind North America and Asia in fintech funding. In 2015, VC-backed fintech companies in Europe raised just $1.5 billion, compared to $4.5 billion for Asian firms and $7.4 billion for those in the US.