Fintech investment in UK has reached a new high with several leading companies having established their presence on the stock market and creating a new class of entrepreneurs. The Fintech hub is now in the UK, with leading venture capital groups in the region supporting companies from across Europe and beyond. In the last decade, many small and medium size businesses in the UK have chosen to take advantage of the opportunities available in the global marketplace provided by the technology and solutions offered by leading Fintech companies. A leading industry body called the Financial Services Authority is responsible for ensuring that the Fintech sector in the UK is regulated and all companies playing by the rules are legitimate and reputable.
In the next few years, we expect investment in Fintech to increase significantly as leading fintech startups make progress towards achieving their business goals. In upcoming years, the UK will emerge as one of the top destinations for investment in the technology sector. In 2021, the UK will be a European leader in deploying hi-tech innovation strategies and developing advanced infrastructure to create value. According to research by the IDS London, a leading think tank, investment in Fintech in the UK will continue to rise as leading fintech startups achieve new market objectives.
In the next decade, we expect UK Fintech investment to rise above the previous decade, as a result of the following factors: (a) the ongoing growth of hi-tech companies, (b) an increase in the number of new investment fund managers who are professional venture capitalists and (c) an increase in the number of venture capitalists who prefer investing in the emerging Fintech sectors. In the coming years, we can expect an additional increase in Fintech investment as companies in the sectors that were not included in the last decade to gain more market share. For example, in the last decade few companies specializing in software outsourcing were generating high returns. However, by the end of this decade many companies in this niche will provide returns exceeding those from most traditional venture capital investments.
In terms of the numbers of high value hi-tech companies, we can expect an additional five to ten percent increase in the number of Fintech investment companies in the next two years. The number of Fintech startups expected to emerge in the next two years is also expected to rise. An additional eight to ten percent increase in the total number of Fintech startups over the next two years can be contributed by a combination of factors: (a) an increase in the number of venture capitalists who prefer to invest in these companies, (b) an increase in the number of accredited investors, (c) an increase in the number of underwriters who approve financing for these companies, (d) an increase in the number of insurance underwriters who provide insurance cover for Fintech investments, and (e) an increase in the demand for secondary, private label products such as Qubes and other custom software applications. All these factors have potential for creating significant future growth opportunities for Fintech investments.
There is one other area which has been gaining significant attention as a result of the economic recession and growing concern about the sustainability of the status quo: Fintech investments in the consumer packaged goods sector. The sectors of food, beverage, and cosmetic manufacturers are all growing at a rapid pace and at a high rate since consumers’ spending habits are changing rapidly. In addition, we see a trend towards “design-ology”, a term which applies to processes related to the design of new products. Design professionals are increasingly important to companies as they improve business models and develop new business strategies.
A number of US banks have been reducing their customer service measures in response to customer dissatisfaction following the credit crisis. Some US banks have followed suit and other banks have chosen to exit the consumer packaged goods business. This trend is interesting because it indicates the impact that a reduction in corporate social responsibility could have on consumer protection movements, both in the US and Europe. If financial industry startups fail to take advantage of this opportunity, some of these movements will be forced onto citizens and the public at large who will become frustrated with the lack of government support for these organizations.
In light of all this, it is not surprising that many US banks and other financial institutions have chosen to focus their attention elsewhere. While many financial institutions have reduced their presence in the consumer packaged goods market, the best choice may be to focus more on fintech development. This sector is highly competitive, providing opportunities for a company to focus on developing a unique technology or application in a new and exciting market segment. There are a number of examples of companies that have developed state-of-the-art fintech products that are complementary to traditional financial services, including (but not always in substitution for) banking, insurance, and accounting. These companies include Kabbage Inc, Verseo, and Quicken Software, and were able to leverage their existing customer base to secure funding for their ventures through capital markets and/or private investors.
While many traditional banking firms are exiting the consumer packaged goods arena, they are not all necessarily headed in that direction. A growing number of banks have chosen to partner with venture capitalists and investment firms to further their efforts in fintech. These firms provide seed funding and mentoring for these startups, as well as providing market exposure through their own research and development efforts. This type of investment is usually made in the form of an acquisition, but there are companies that approach venture capitalists instead. Whatever strategy, bank, or financial institution, opts to pursue, they should do so carefully to avoid missing an opportunity for further success in this promising yet untapped market segment.