Any discussion of growth industries has, in recent years, felt incomplete without some mention of Fintech. The use of technology and innovation within the financial services industry, an authoritative new report published by GP Bullhound presents further evidence of Fintech's continued global success, identifying complementary drivers across different markets.
Whilst there's no official date the phrase Fintech was first used (although some suggest it actually dates back to a Sunday Times piece by Peter Knight in the 1980s), the start of its mainstream use over the last decade coincided with a more direct challenge to established financial systems.
Primarily due to many of these established financial systems being stagnant, they were initially vulnerable to disruption by Fintech businesses; emerging financial businesses and systems that were capable of combining market-leading innovation with superior efficiency.
As the Fintech market matured, however, this relationship became much more collaborative. Many established financial institutions started to engage Fintech firms in the development of new market solutions - or even develop their own Fintech offering internally.
Importantly, such emerging financial systems are, by definition, less dominated by traditional financial institutions. This is true to the extent that Alternative Finance (a key component of Fintech) is more likely to be considered mainstream in places such as China. Entering a less crowded marketplace has enabled Fintech firms to achieve both growth and investment at an impressive scale.
With this in mind, one thing is very clear - Fintech firms are no longer a novel accessory to the financial landscape. The scale of some Fintech valuations and the continued global growth of the industry presents clear evidence of this.
By way of an example, the chart below demonstrates the significance of Asia to the global Fintech market over the past three years. Between 2014 and 2016, the number of transactions in Europe increased slightly, although total deal value fell slightly. In the US, the inverse was true - the number of transactions fell slightly while the total deal value increased slightly.
These shifts are decidedly modest, however, relative to the experience in Asia over the same period. Despite stasis in the number of transactions, at a level below both Europe and the US, total deal value rose from less than $1bn in 2014 to over $5bn in 2015 (overtaking Europe) and then again to over $7bn in 2016 (overtaking the US).
Commentary within the report from Fintech pioneers, such as Jacob de Geer of iZettle, commends the regulatory environment across Europe. This provides market stability and, once regulations have been successfully navigated, enables Fintech businesses to scale up efficiently. Despite not exhibiting growth on the same scale as Asia, this market stability maintains Europe as a strong proposition for Fintech entrepreneurs and investors.
"Once you have jumped the regulatory hurdles, scaling a Fintech business [in Europe] is totally different than trying to scale the same business in the US, where the market is less regulated and has more competitors" - Jacob de Geer, iZettle
What's more, six of the 39 global Fintech unicorns (businesses valued at $1bn+) are based in Europe. Europe is best represented in the digital payments market, where four of the eight global Fintech unicorns are based.
And from a UK perspective, GP Bullhound endorses the UK as the preeminent European Fintech centre. Four of the six European Fintech unicorns - including Europe’s sole alternative finance unicorn - are located in the UK, and analysis within the report expects this to continue.
As an equity co-investment platform, this is great news for GrowthFunders. We are confident that bringing together different investor groups to syndicate investments offers mutual benefits to all.
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