Financial technology disruptors are here to stay. And though the banking industry has been on the frontline of change, wealth managers and trading businesses will begin to feel the shake-up more, said Roger Gifford, former Lord Mayor of London and member of the Board of Multrees Investor Services, a fund administrator.
London has some 44k people employed in the sector, four times more than Silicon Valley and in-line with New York, while banks employ more technologists than the technology sector. Overall, companies based in the capital raised $1.6 billion in the first nine months of 2015, with high-profile multi-million pound deals for Funding Circle, WorldRemit and TransferWise.
The areas of real opportunity are around the market drivers: cost, control, capital and compliance
WorldRemit raised $100 million in 2015 led by Technology Crossover Ventures. A spokesman for the company said that fundraising is ‘very much on the agenda again for this year’ but declined to provide more details.
While the headlines have focused on disruptive B2C Fintech, enterprise Fintech will start coming into its own, said Mark Whitcroft, Partner at Illuminate Financial, a London-based venture capital firm.
By ‘enterprise Fintech’, he is referring to technology stacks for banks and professional investors, exchanges and other major capital market players, for example. “The areas of real opportunity are around the market drivers: cost, control, capital and compliance,” he said.
Some of the trends to watch, he added, are: the growth of banks pooling towards collective technology solutions, technologist migration from traditional organizations to younger companies, and which of the large pool of smaller companies manage to make the move from Angel funding to more institutionally driven later stage funding rounds.
In a recent report, Magister Advisors predicted that payments and blockchain will be the most active segments. “Payments has gone from ‘boring’ to ‘disruptive’ in a very few years, and we see a range of larger players from PSPs (payment services providers) to alternative payments giants continuing to broaden their offerings as they seek to capture margin and customers,” wrote Victor Basta, Managing Partner at Magister Advisors.
Multrees’ Gifford added that a period of consolidation is at hand as “hard-headed investors take a longer look at what they hold and where proven value lies”. The sector is also receiving more interest from overseas, with potential greater investment from the US, and possibly Japan, on the horizon.
In terms of corporate activity, higher levels of M&A are more than likely this year compared with 2015, as foreign companies are now finding the UK attractive, as property investors have done previously.
Ernst & Young reported a 90% increase in UK M&A value year on year by value, and the number of deals up from 630 to 680. The fundamentals for 2016 appear robust, assisted by cheap debt and increasingly attractive sectors such as financial technology and investment and wealth management, as well as infrastructure and manufacturing.
Looking out of London, Illuminate’s Whitcroft also noted Fintech developments in the world’s financial centres – New York, Singapore and Hong Kong – are a space to watch.