Fintech. Mapping the Market. Sonovate QuickView Series #12

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1 Fintech Mapping the Market Sonovate QuickView Series #12

2 What is Fintech? A contraction of financial and technology, Fintech is the term used for any technology applied to financial services. As bold and innovative ideas meet technological possibilities, the Fintech sector is expanding its reach beyond lending, crowdfunding and money transfers. The UK s Fintech market is currently worth $28.8bn in annual revenue with four companies from the government-backed Future Fifty scheme valued at more than 1bn. Altogether, the Future Fifty companies have a combined value of 11bn on the London stock market, with an average investment growth of over 63%. The Background The global financial crisis is credited in large part with the development of Fintech. Public distrust with the establishment and advances in digital technology created the perfect environment for Fintech companies to provide access to better finance. $28.8bn

3 The Situation Global Fintech financing was forecast to reach $20bn in an increase of 66%, from 2014, According to KPMG. But it is in the UK that we can witness rapid growth. According to the Confederation of British Industry (CBI), the UK Fintech sector will be one of three sectors predicted to be worth a combined 300bn by The huge increase reflects a shifting sentiment among investors, who are now choosing to spread their technology investments beyond Silicon Valley. As the digital revolution continues to drive change through global industries, the UK proves to be an even stronger hub than it was a year ago for some of the world s most innovative and exciting tech companies to operate in. In 2015, companies operating in the UK tech sector received a record 2.48bn in venture capital funding. The significance of the investment is reflected in the growth of startups, their contribution to the economy and their impact on the jobs market. According to Ernst & Young, the UK is very attractive for Fintech startups and international Fintech startups often move to there to use the UK market as a platform for internationalisation. 4000m Investment UK London 3500m 3647m 3000m 2500m 2000m 2122m 2281m 1500m 1350m 1000m 968m 1027m 1152m 791m 756m 500m 502m 302m 0m 101m

4 10 biggest London Fintech deals of 2015 (million) $150m Funding Circle $100m WorldRemit $58m TransferWise $20m Azimo $128m Atom Bank $83m Ebury $35m LendInvest $20m Credit Benchmark $19.5m Borro $18m Currency Cloud Where is London Tech Money Coming From? % of deals based on investor HQ country, Q Q % 50% 2% 2% 2% 2% 4% 50% 29% 4% 2% 2% 2% 2% 9% United Kingdom United States Israel Germany France Sweden Netherlands Other

5 The Challenges Has rapid growth caused a shortage of talent? As reported by the online marketplace for tech talent Hired, 65% of UK Tech businesses fear a revenue dip due to a shortage of talent. A longer-term view shared by Banking Tech is that the shortage can be addressed by Fintechs growing their own talent from an early stage, rather than waiting for the perfect candidate. However, in the short-term, Fintech hiring is fast-paced. In 2016, referrals, particularly for the contract market in roles covering UI/UX, development, data, marketing and security, will be invaluable. In 2016, the value of referrals, particularly for the contract market in roles covering UI/ UX, development, data, marketing and security will be invaluable. Furthermore, identifying and networking with startups at an early stage will be critical. In 2015, the UK received record investment in Fintech by September of that year. Understanding how funding received, and at what stage, equates to hiring will place recruitment professionals in prime position to support talent acquisition. Are there any headwinds? Cyber-attacks: with nearly 300 million records leaked and over $1bn stolen in 2015, hacking is an increasing problem. Fintechs need to be prepared by having a strong cyber-security team backed up with clear organisational processes and employee training. 30O $1BN 2015 million records leaked stolen Apart from London, are other areas of the UK growing Fintech hubs? London is undeniably the world leader in Fintech, hosting around 300 global banks and home to more than 130,000 skilled financial specialists, but it is not the UK s only Fintech hub. Manchester is rapidly growing its financial services sector, investing over 3.5bn in digital and tech infrastructure. As part of their regional strategy to unite and promote Fintech across the UK, Innovate Finance has also started to forge a new connection with Manchester as well as with Leeds and Edinburgh s Fintech hubs. How are the incumbent banks reacting? Banks are fully aware of the Fintechs threat and are beginning to act on it by considering blockchain, which is a huge database of all Bitcoin transactions. Paradoxically, as Fintechs move into different parts of banking, this helps banks create better products and services for their own clients. Instead of declaring war, banks are looking into finding new ways of working together though incubator and accelerator programmes. For example, Barclays, Santander and Visa run their own programmes. www Is Fintech a bubble? The Fintech sector is definitely booming and many cynical analysts will tell you that what goes up must come down, but according to City AM, the answer is clearly and simply: No. There are two kinds of Fintechs: the disruptors, like FundingCircle, Atom Bank and izettle, big in 2015, growing quickly and taking market share from the banks, and the enablers, like Bankable, Elliptic and Osper, predicted to be huge in 2016, when the global financial institutions start to heavily increase their investment in Fintech.

6 SMEs power the economy by accounting for more than 60% of jobs - yet banks are still reluctant to lend to them and they are limited by lots of red tape.

7 The Opportunities The UK Government The UK Government is determined to make London the Fintech capital of the world and has established a highly progressive regulatory environment, through tax incentives and funding support. Regulators keep an open dialogue with Fintechs and do not hesitate to modify regulations to support them. The focus of the government is on consumer protection while making sure the sector in flexible enough to keep on innovating. SMEs SMEs power the economy, accounting for more than 60% of jobs - yet banks are still reluctant to provide the right type of finance and support to foster business growth. This presents an opportunity for Fintechs to finance and host compliance assistance tools to support the SMEs. Consumer Behaviour The success of Fintechs in the UK is largely due to the fact that there is a massive level of investment and quick adoption of Fintech products and services by young and wealthy internet users. According to London & Partners, a non-profit entity funded by the Mayor of London: 35% of the UK s online population has used at least one Fintech product and contactless spending has increased over 560% in a year. Industry Growth The The UK app and e-commerce export markets are set to be worth 76bn by The growth in these digital sectors will see the number of employees in UK digital companies rise by 5.4% - higher than the total forecasted job growth. Investments UK Fintech Venture Capital investment has jumped up 70% from 2014 to 2015, reaching a record 2.46bn. In only 10 years, London has attracted 1000 international tech investment projects, which is more than any other European country. Hot sectors in 2016 Payments and transactions Lending Big data Cryptocurrency and blockchain

8 Fintech Sector Insurance Lending P2P Lending Crowdfunding Online Lending Security Foreign Exchange Data & Analytics Big Data Credit Scoring Research Wealth Management

9 Compliance Cryptocurrency Wallets / Payments Exchange Mining Platfrom Technology Personal Finance Capital Matters Payments Payment Processing Mobile Payments Payment Service Providers Money Transfer Remittance Real Estate

10 Payments Subsectors Payment Service Providers: offer merchants various online payment services GoCardless, SumUp, Judo Payments. Mobile Payments Providers: enable consumers to pay on the go via mobile devices - Velocity Mobile, Flypay, Masabi, Revolut. Money Transfer Providers: electronically transfer money from one party to another as payment for goods or service - Currency Cloud, Ebury Partners. Remittance Transfer Providers: electronically transfer money from an individual to another (not as a result of a payment for goods or services) in foreign countries WorldRemit, Azimo. Payment Processing Providers: offer merchants the ability to handle transactions from various channels AccessPay, Bitstamp. Our pick of the UK Fintech Payment companies to keep your eye on in 2016: Location: London, UK Founded: 2011 Notable clients: HM Government, Virgin, The Guardian, Financial Times, Trip Advisor GoCardless offers smaller merchants a simple and costeffective way to accept recurring payments. They process over $1bn every year, have thousands of clients and are growing fast.

11 Data & Analytics Big Data Managers: handle data sets that are more complex than normal Privitar, DueDil, Algomi. Credit Scoring Analysts: analyse someone s creditworthiness Aire, Clearscore. Research Providers: provide financial information and data Markit. Our pick of the UK Data & Analytics companies to keep your eye on in 2016: Location: London, UK Founded: 2012 Notable awards: Financial News Most Innovative Trading Service, Buy-Side Technology Waters Technology s Product of the Year, Euromoney s Fintech Innovation of the Year. Combining Big Data with social networking, Algomi allows users to securely and intelligently harness data to make valuable financial trading connections.

12 Digital Currencies (Cryptocurrencies) Digital Wallets: apps that hold payment and loyalty information - Yoyo. Digital Currencies Exchange: trading platforms for digital currencies - Coinfloor. Bitcoin Mining: releases Bitcoins by verifying digital transactions and adding them to the public ledger - Blockchain. Platform Technology: platforms where you can trade or store digital currencies - Elliptic. Our pick of the UK Fintech Digital Currencies companies to keep your eye on in 2016: Location: London, UK Founded: 2013 Yoyo Wallet allows its customers to enjoy easier and faster payments, automatic point and stamps collection and instant reception of voucher and digital receipts.

13 Lending Subsectors P2P (Peer-to-Peer Lending): offer individuals and companies to lend money to unrelated peers without going through a traditional financial institution - Fruitful Finance, Landbay, Lending Works, LendInvest, Zopa. Crowdfunding: offer projects and ventures to be funded by monetary contributions from a large number of unrelated people who believe in the idea in return of shares or rewards/prizes - Prodigy Finance, Emerging Crowd, Crowd2Fund, Crowdcube, Property Partner. Online: lend money online without going through a traditional financial institution Lendable, Ezbob, Borro, Wonga, Salary Finance. Our pick of the UK Fintech Lending companies to keep your eye on in 2016: Location: London, UK Founded: 2014 Property Partner is a property crowdfunding platform allowing individuals to easily invest in hand-picked residential properties.

14 Emerging Fintech Subsectors (Cryptocurrencies) Capital Markets: marketplaces where buyers and sellers trade financial securities (bonds, stocks, etc.) to raise medium to long-term financing - Origin. Foreign Exchange Brokers: offer the conversion of one currency to another to individuals and other businesses for a purchase or for a sale - Kantox. Real Estate Companies: buy, sell and rent properties - Brickvest. Insurance Providers: provide compensation from loss, damages, injury, treatment or hardship - Brolly, Insly. Personal Finance Providers: offer the management of all financial decisions and activities of an individual or a household - Squirrel, Pariti Technologies, Thoughtmachine. Wealth Management Providers: offer investment management and financial advice - etoro, Nutmeg. Security Providers: offer cyber security consultancy and advice - Crypta Labs, Aimbrain, Ravelin Technology. Compliance Providers: ensure their clients are complying to industry regulations and government legislations - Behavox, FundApps. Consumer Banking: offer banking services to individuals rather than to companies - Osper, Bankable, gohenry, Starling Bank.

15 Hot jobs in 2016: I.T Technical Analyst Developer (Ruby, Javascript, Python, PHP, C#) Front-End Developer Business Analyst Business Intelligence Manager Data Scientist and Engineer UX/UI Designer DevOps Engineer Finance Financial Accountant Operations & Business Administration Infrastructure Support Financial Controller Credit Underwriter Administrator Risk and Compliance Analyst IT 45% Spread of Jobs within Fintech Businesses Accounting & Finance 12.5% Marketing Social Media Analyst Events Manager PR and Communications Manager SEO Manager Digital Marketing Executive Head of Content Sales 10% PR, Advertising & Marketing 8.5% Other 8% HR & Recruitment 5% Sales Account Manager Business Development Manager Sales Executive Finance Sales Executive Head of Global Sales Regional Sales Director Creative & Design Admin Engineering Graduate 3.5% 2.5% 2.5% 2.5% (source: Adzuna)

16 Networking Fintech Businesses Some of the best networking events to check out in London in 2016: February 09 Finovate Europe April 07 Fintech Innovation Awards April 11 Innovate Finance Global Summit June 07 PayExpo 2016 December 08 Fintech Connect Live Reference Shelf Adzuna Banking Tech Business Matters Celent City AM Crowdfund Insider Fintech Finance Mason Hayes & Curran Relocate Global Silicon Valley Bank Tech City News Tech City UK UK Fintech Chameleon Design, Noun Project Lemon Liu, Noun Project Pavel Pavlov, Noun Project