Future of Fintech 2019

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Distributed in Published in association with Although this publication is funded through advertising and sponsorship, all editorial is without bias and sponsored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 8616 7400 or e-mail info@raconteur.net. Raconteur is a leading publisher of special-interest content and research. Its pub- lications and articles cover a wide range of topics, including business, finance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclu- sively in The Times and The Sunday Times as well as online at raconteur.net. The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced with- out the prior consent of the Publisher. © Raconteur Media /future-fintech-2019 @raconteur /raconteur.net @raconteur_london raconteur.net Contributors 2 9/ 0 9/ 2 0 1 9 # 0 6 2 2 But he believes "for fintech, the innova- tion, creativity and ambition to scale that res- onates throughout the vertical has overcome the otherwise unfavourable climate". Ben Müller, chief of staff at peer-to- peer lending platform Lendable, which he founded in 2014, adds that the international investors his business speaks to continue to be active in the UK. "They see strong risk-ad- justed return and growth in the fintech sec- tor," he says. Mr Müller says that in recent months Len- dable has completed deals with Goldman Sachs, Credit Suisse and Natwest Markets, while also launching a credit fund, which attracted investors from seven countries. So far in 2019, challenger banks have domi- nated the fundraising charts in terms of scale. In February, London-based business and property lender OakNorth said it was plan- ning to expand internationally after complet- ing a $440-million fundraising round led by Japan's SoftBank Group. Monzo and Starling Bank have also closed major funding rounds, while in the payments and exchange sector, startups including Checkout.com, WorldRe- mit and GoCardless, have all defied economic headwinds to raise cash. But ventures from other corners of the market have enjoyed largely unfettered access to funding too. Businesses that are providing solutions to financial services firms' changing demands to securely hold and leverage the power of data are particu- larly garnering the attention of investors, as are companies riding trends such as the move to cloud-based technologies. UK startups defy Brexit jitters as funding jumps The UK fintech industry continues to enjoy healthy levels of investment despite an otherwise unfavourable climate n July, less than a week after Theresa May handed the reins of the UK government to Boris Johnson, raising the spectre of a no-deal Brexit plung- ing the country into economic chaos, Rado Lipuš and his team were celebrating. Neudata, the London-based fintech startup, which the Austrian-born entrepre- neur founded in 2016, had just announced a $1-million funding round. The value of the transaction may have been diminutive compared with the sums raised by some of Neudata's larger peers, but Mr Lipuš says it represented a milestone. "It was a clear indicator that the invest- ment communities' appetite for innova- tive financial tech companies is very much intact, regardless of what might be going on elsewhere," he says. Neudata, which uses software to source often obscure data to help asset manage- ment companies make investment deci- sions, has grown from one to fifteen full- time employees since launch. But its success is far from an anomaly within the UK's fintech sector, despite a politi- cal and economic backdrop racked with crippling uncertainty. According to Workthere, the serviced- office arm of estate agent Savills, venture capital (VC) funding in the UK hit a record high of £4.3 billion during the first half of 2019, representing a 45 per cent increase on the same period in 2018. Tech companies accounted for 60 per cent of the value of all deals and eight out of the top ten VC funding deals during that period took place in the fintech space, a sharp rise from just three a year ago. "The UK unquestionably has a unique competitive advantage in fintech and holds an unrivalled position on the global stage, setting the pace," says Russ Shaw, founder of Tech London Advocates and Global Tech Advocates, trade bodies for the tech industry. "Britain benefits from a deep-seated her- itage in banking and financial services, a collection of the world's greatest universities, highly skilled talent and a progressive, forward-facing regulator in the Financial Conduct Authority." Mr Shaw, who is also a technology ambas- sador for the mayor of London, concedes: "Politics has returned in a big way as an investment variable for funders looking at Britain as a destination to deploy capital." Mark Whitcroft, a founding partner at Illu- minate Financial Manage- ment, a VC firm that has investments in more than a dozen fintech companies, says some of the most compelling opportuni- ties may lie beyond the big names. "What's important to understand is that financial services are undergoing a once-in-a-generation shift in terms of the way businesses operate," he says. "Migration to cloud is just one example of that as is data architecture or developments in the way we mine, use and handle data." These technological shifts, he says, "are an inevitability and a long-term trend that will continue to materialise regardless of the geopolitical backdrop". In June, Privitar, a software startup founded in London in 2014 that helps com- panies protect their data, and one of Illu- minate Financial Management's holdings, raised $40 million in a series B round led by Palo Alto-based VC firm Accel and backed by a bevy of other investors. "Brexit is obviously far from ideal, but the trends which are creating these opportuni- ties are far more significant than any tem- porary headwinds that might cast a shadow over financial markets for the next year or two," says Mr Whitcroft. Ben Braby, head of Level 39, a startup incubator owned by Canary Wharf Prop- erty Group, echoes this: "The country's unique conditions for growth – an abun- dance of world-class talent, the proficiency of cross-sector collaboration in technology, contemporary spaces specifically designed to support digital firms and a supportive policy landscape – are allowing new startups to rap- idly expand into scaleups," he says. "Despite Brexit uncertainty, these unique conditions for growth are rarely found any- where else in Europe." But, while it's not difficult to find both investors and businesses willing to back the funding market's strength, others remain cautious that excessive optimism might prove costly in the long run. "Investor appetite for fintechs is clearly high; the sector is very en vogue at the moment," says Michael Magee, lead partner in PwC's UK finan- cial services deal practice. "Private equity and VCs like to find the next big thing, and that's likely driving many of the investment decisions. But, even if a business can defy gravity for a bit, without strong fundamentals, it's impossible to do so forever." Mr Magee warns that if the UK econ- omy deteriorates, a fintech must have all the fundamentals in place to stand a chance of weathering the storm. Some, he warns, might not. "That includes having competitive technology, great intellectual property, solid governance and strong talent, but it also includes a resilient client base," he concludes. "If they don't have all this when the music stops, they may well find them- selves in serious trouble." FUTURE OF FINTECH Josie Cox I I N V E S T M E N T Digital Finance Forum 2019 1 in 3 2 in 3 are optimistic about the UK's position as global leader in five years say hiring enough good people across all disciplines and roles is the biggest challenge facing UK fintech now KPMG/PitchBook 2019 TOTAL FINTECH INVES TMENT AC TIVIT Y IN EUROPE Venture capital, private equity and mergers/acquisitions combined ($bn) The UK unquestionably has a unique competitive advantage in fintech and holds an unrivalled position on the global stage I N D E P E N D E N T P U B L I C A T I O N B Y R E I N I N G I N R I S K D I G I T A L B A N K R U N S I M M I G R A T I O N Artificial intelligence-powered regtech is tightening up banks' AML and KYC policies As we move towards a cashless society, will bank runs still be a thing, and what will they look like? Can fintech help solve the common financial problems of populations in transition? 03 08 11 Richard Brown Journalist and presenter, he covers conflict and corporate controversies, and is Middle East correspondent for Il Giornale. Design Joanna Bird Sara Gelfgren Kellie Jerrard Harry Lewis-Irlam Celina Lucey Colm McDermott Samuele Motta Jack Woolrich Head of production Justyna O'Connell Head of design Tim Whitlock Managing editor Benjamin Chiou Associate editor Peter Archer Deputy editor Francesca Cassidy Digital content executive Taryn Brickner Publishing manager Alexion Lai Q1 Q1 Q1 Q1 Q1 Q1 Q2 Q2 Q2 Q2 Q2 Q2 2014 2015 2016 2017 2018 2019 Q3 Q3 Q3 Q3 Q3 Q4 Q4 Q4 Q4 Q4 Europe UK 63% of UK fintech founders say the UK is the global leader in fintech, but only… Finbarr Toesland Journalist, he specialises in technology, business and economic issues, and contributes to a wide range of publications. Daniel Thomas Writer and editor, he has contributed to the BBC, Newsweek, Fund Strategy and EducationInvestor. Josie Cox Journalist and broadcaster, she worked at Reuters and The Wall Street Journal, and business editor of The Independent. Marianne Curphey Financial writer, blogger and columnist, she has held positions at The Guardian and The Times. Christine Horton Long-term contributor to specialist IT titles, including Channel Pro and Microscope, she writes about technology's impact on business. Michelle Perry Business and financial Journalist, she is currently editor of UK Landlord magazine. Joe McGrath Financial journalist and editorial director of Rhotic Media, he has written for Bloomberg, Financial Times and Dow Jones. Gouri Sharma Freelance journalist formerly with Al Jazeera English, she covers culture, current affairs and emerging trends. DISCLAIMER: Content in this publication should not be used as financial advice – please ensure you always seek the help of a qualified investment adviser of financial professional. 1.5 2.1 0.3 1.5 1 0.3 2.3 2.5 0.3 0.7 0.1 0.3 0.6 2.2 1.2 2 13.2 4.9 2.7 3.8 2.2 1.7 4.1 2.3 5.4 3.3 2.1 0.8 3.5 6.4 0.8 4.1 0.5 0.6 1 3.3 2.7 4.7 20.4 6.6 7.1 4.8 9.3 3.9 R A C O N T E U R . N E T

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