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The booming Fintech market and where the money is going

Fintech - Where's all the money going?

Recent research by technology mergers and acquisitions advisory firm Hampleton Partners has found that $31 billion was invested in the Fintech market in 2018 – the highest level on record.

According to the company’s analysis, that figure is nearly double what it was in 2017, largely thanks to fintech startups maturing and a host of mega funding rounds in the Asia-Pacific region.

Perhaps notably, given the ever-present fears about the damage that a no-deal Brexit might do to the economy and investment into both technology and finance – two sectors that thrive in London – the UK led Europe in the second half of the year, according to director and fintech specialist at Hampleton, Jonathan Simnett.

“In the latter half of 2018, the UK continued to lead the way in Fintech in Europe, breeding a new generation of innovators with record levels of investment following the lead of new unicorns like Monzo and Revolut,” he said. “Retail banking has led the charge in upgrading digital consumer experiences, whilst incorporating Fintech into core banking products, whereas investment banks have been more focused on integrating robo-advisory services.”

That’s an important distinction, and something which has been covered on this blog before – the interrelation between consumer and business tech. More often than not, what happens behind the scenes in businesses is what leads the way in terms of the technology and its adoption, but sometimes, arguably such as in fintech, consumer technology goes out ahead.

The key Fintech trends

The company’s research identifies a number of key trends in the Fintech space. First, it says, is the high level of adoption of biometric technologies in consumer Fintech, with fingerprint and facial recognition now commonplace in smartphone payment authentication systems.

The firm also thinks that artificial intelligence adoption is likely to be a more gradual process rather than a sudden jump – though it does acknowledge that the area “shows promise”.

As we’ve already seen, the UK led the way in Europe, but, as is so often the case, it’s all relative. The firm points out that “even the biggest British fintech firms are dwarfed by America’s Stripe, Robinhood and SoFi. These, in turn, are outclassed by China’s Ant Financial, recently valued at $150 billion”, it says.

Simnett predicted that, in 2019, “it is anticipated that the largest Fintech firms will soon realise value through IPO”.

“Meanwhile, most startups that have grown large enough to gain traction, attract a strong customer base and produce a profitable balance sheet, will remain small enough to be acquired by fintech and traditional incumbents leading to an ongoing process of consolidation and M&A,” he said.

The value of Fintech

Speaking to Forbes, Simnett also made an interesting observation about the changing way in which large incumbent companies, both in tech and finance, now innovate. As he put it, M&A is the new R&D.

What he means by that is that rather than investing huge sums into internal research and development in order to stay ahead of the market, a lot of companies now choose to let smaller, business-to-business startups do the innovative thinking and technological development, and then snap them up when they decide that they could add to their own business.

So, although we have seen that to some extent the consumer market leads the way in fintech, in terms of where the money is, it once again seems to be in the business-to-business sector. As Simnett said to Forbes, “if you look at financial technology purely through the prism of consumer-facing plays such as Revolut or Transferwise, then you are missing out on a huge amount of activity that is certainly contributing to rapid change in the financial services market, but doing so by catering to established businesses rather than competing with them”.

With all that money floating around in place of research and development budgets, and the constantly developing world of tech financing, including through the now-dominant venture capital firms, that means that making smart and useful technology at a startup could prove to be highly valuable – and soon.

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