Is London’s FinTech scene bigger than the Beatles? That’s an unequivocal “no,” but the playful comparison can be forgiven in light of London’s rise as an epicenter of FinTech activity. The city is awash in venture capital (VC) seeking unicorns — but not the type found in royal tapestries.
On Thursday (July 8), business growth and promotional agency London & Partners announced that a record $5.3 billion was invested into London-based FinTechs in the first half of 2021 alone.
Asked about six-month spike in investment, London & Partners Acting CEO Allen Simpson told PYMNTS that action in the payments subsector — the city’s largest FinTech category and beneficiary of 40 percent of all VC investments in London firms so far this year — makes sense.
“The thing about payments as a subsector of FinTech is that it’s got such clarity,” Simpson said. “You know who the customers are … you’ve got sight of what it is you’re charging and why. Probably more than any other sector of FinTech [there is] a real commercial clarity about [payments]. There’s a reasonable revenue stream, [these startups] are delivering that revenue, and [so] you’re always going to see investors price that sensibly.”
He added, “What’s interesting is the places where the payments sector is doing so well. It’s New York, it’s London, because they’re both mature financial centers. If you bring [a payments startup to London] you can access that financial skill, you can access innovation-first regulators, you can access coders, you can access designers, you can access all the skills that you need to bring these businesses and these models to maturity. I think that’s a lot of what we’re seeing around here, and in our partner cities around the world.”
Later-Stage Funding Moving To Center-Stage
Investment stats compiled by Dealroom.co also found “a sharp increase in access to later-stage funding for London fintech companies, with almost two thirds ($3.4bn) of the $5.3bn raised in 2021 coming from funding rounds over $100m, including $2.3bn across six $250m+ deals.”
According to Simpson, interest in later-stage funding for FinTechs is being driven by two primacy factors. First, he said, “We tend to think of innovation sectors as being early stage, but that’s not true anymore. These are big mature companies, a lot of them have really clear revenue streams, and that’s driving a lot of investors to be very confident in these sectors. The second thing, which is really interesting, is how resilient they proved” though the pandemic.
Acknowledging the public health crisis of the past 17 months, Simpson said “there is definitely an economic crisis as well, of course, and … certainly compared to, say, 2008, these sectors have come through that period more strongly, rather than experiencing [an economic] hit.”
He added that “a lot of what we’re seeing here is investor sentiment saying ‘yeah, these are sectors which of course are innovative, but maybe more than that, they are mature in their business plans and their revenue streams and their backing.’”
London Lays FinTech Funding Foundations For The Eurozone
As to how long London can keep its FinTech rally going, Simpson said, “We had a really strong first-half … driven by some [really big deals]. But it’s also driven by the fact that a lot of VC and a lot of late-stage powder has been dry for a year. That money has been waiting to be deployed.”
On whether this level of VC investment growth in London can last, he said, “I do think it’s sustainable, and particularly for payments within FinTech, because of the B2B side of it, [and Fintechs] providing services to banks, insurers and other large players providing products which are basically better than the in-house alternatives.”
On the B2C side, Simpson said FinTechs “providing services directly to consumers are increasingly … savvy about the need to own the layer, and the need to make sure that these products are more user friendly [with] less friction than the bigger alternatives. In some ways we’ve only seen the start,” he said, adding that “we will see some of these models get to significant scale, and other models reach … impressive scale quite quickly.”
Anchoring the vibrant FinTech sector across Europe, London venture capital figures prominently into many FinTech incubations happening across the Eurozone and will likely continue to do so.
“London’s role at the center of the European ecosystem is really fundamental,” Simpson told PYMNTS. Not only does “The Big Smoke” have the concentration of coders, designers and financial minds to imagine and engineer new solutions — it clearly has the capital, too.
“You do need consolidation of access to capital, because if you want VC to invest at scale, VC needs to be able to scale,” he said. “Having London at the center of the European investment market and able to provide … direct access to a global investment stream, but able to support a much more diverse and dispersed innovation network, is a really strong model. Certainly, London is really proud to play its part in the European [FinTech] scene.”
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