What is fintech?
There is no universal definition or classification of fintech but it is widely regarded as technology applied to financial services. This includes more traditional services like payment processing and lending to newer areas being created thanks to advancements in technology, such as regtech or blockchain and cryptocurrencies.
The rise of fintech has been driven by the rise in technology, twinned with the mistrust and lack of confidence that people had in large traditional banks following the 2008 financial crisis. Despite the size and power of big banks, they have struggled to keep up with the newer start-ups trying to disrupt the market. This is because they are highly regulated, have old and complex information technology (IT) systems and can sometimes concentrate too much on serving big business rather than everyday people.
Banks and other established financial business, like payment processors, have eagerly started to buy or invest-in fintech start-ups to try and catch up and some have taken the braver step of launching new digital-only services from scratch.
Unfortunately for investors, most of the newer fintech businesses that are making a lot of noise in the market – such as Monzo and Revolut – are still in private hands. This is because the market has had no trouble raising the money it needs from venture capitalists and private equity.
What you need to know about fintech in the UK
There are over 1,600 fintech firms in the UK, according to government figures, but only a handful of them have gone public.
The UK is adopting fintech at a much faster rate than the world average, but the market is still in its infancy and defined by fast-growing but loss-making businesses. An analysis by KPMG suggests it is not uncommon for fintech start-ups to remain in the red for the first five years, and it is not uncommon for them to be loss-making for longer – Funding Circle has been around for a decade but still isn’t making a profit.
Still, there have already been huge success stories for UK fintech, none more so than Worldpay. Having started out as a payment processing start-up in 1997, the company went public in 2015 with a valuation of $7.4 billion, was purchased by Vantiv for $11 billion in 2018 and then eventually bought out by Fidelity National Information Services, or FIS, for a whopping $35 billion in 2019.
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Top UK fintech stocks
Although investors cannot directly invest in many emerging fintech companies, there are still plenty of options.
UK challenger banks like Metro Bank and OneSavings Bank are often referred to as fintech companies, but we have omitted them from this list and focused on ten alternative stocks operating in the fintech space:
International Personal Finance
Zaim Credit Systems
Finablr is payment processing and foreign exchange service company based in the United Arab Emirates (UAE). The company has several brands including UAE Exchange, Xpress Money and Travelex and is licenced in 45 countries, although its network is used in over 100 nations worldwide. In total, it has over 25 million customers and helps 1500 corporations and institutions. It processes over 150 million transactions per year worth over $115 billion in terms of volume. Finablr is fast-growing but also loss-making. Growth has been partly fuelled by partnerships with some big-name brands, including Samsung, China Union Pay and Airtel Africa.
Finablr shares have not performed well since it listed in London Stock Exchange (LSE) in the middle of 2019 and have lost around two-thirds of its value compared to its initial public offering (IPO) price of 175p.
International Personal Finance (IPF)
International Personal Finance is a lender operating across Europe. There are two prongs to the business. The first is a home credit division that sees agents visit customer’s homes to provide personal lending options, while the other is a digital division that serves customers online. Its home credit business is live in the Czech Republic, Hungary and Romania, while its digital businesses runs in Finland, Estonia, Latvia, Lithuania, Spain and Australia. It operates a dual model in Poland and Mexico. In total, it has around 1.8 million home credit customers and over 300,000 digital ones.
International Personal Finance, unlike most of the fintech firms on this list, is in the black and pays a dividend. It announced its maiden pre-tax profit in 2018 and delivered bottom-line growth in 2019, adding that it expected growth to accelerate again in 2020. The firm has been around longer than most fintech firms, but its share price has failed to recover from the highs recorded in 2013.
Funding Circle (FCH)
Funding Circle is one of the better-known fintech firms. The company operates a platform that allows small businesses to source loans provided from investors, meaning businesses get the funding they need to grow, and investors get a return on the money they have leant out. Its four key geographical markets are the UK, US, Germany and the Netherlands. It continues to deliver double-digit revenue growth and loans under management has also continued to rise to hit £3.7 billion, but it remains firmly in the red.
Funding Circle has been around since 2010 but only went public in September 2018. Having listed at a price of 440p (which was at the bottom of its original range), Funding Circle shares have never traded above the IPO price and have lost over 80% in value.
Amigo Holdings (AMGO)
Amigo Holdings is a lender that targets ‘ordinary people who are being excluded by mainstream lending providers’ and are looking for alternative modes of finance compared to taking out high-cost or payday loans. Instead, it provides guarantor loans, whereby the borrower has a guarantor that foots the bill should they fail to pay.
Amigo shares fell off a cliff in late August last year when it said it was overhauling the business in response to a regulatory crackdown on non-standard finance and has since launched a formal strategic review and made itself open to possible takeover offers.
Augmentum Fintech (AUGM)
Augmentum Fintech is the only UK-listed venture capital investor that solely concentrates on fintech. The fund is over £130 million in size and it has interests in many of the hot fintech companies that remain in private hands, such as mortgage lender Habito, business bank tide, and peer-to-peer lending firm Zopa. The rest of its portfolio is made up of investments in UK mobile bank Monese, online investment service interactive investor, German tech subscription business Grover, and Bullionvault, which allows people to buy gold, silver and platinum online.
Augmentum is one of the best ways for investors to gain exposure to the majority of fintech businesses that they can’t invest in directly.
CPP Group (CPP)
CPP Group provides a range of technological services to businesses and individuals. It has six core products around card protection for theft and loss, extended warranties on electrical goods, mobile phone insurance, online and identity security, travel disruption insurance, and health and wellness plans in emerging markets. It has established businesses in the UK and Europe and high-growth markets in the likes of India and Turkey. It has also made tentative moves into China and Mexico, both of which could offer huge potential. CPP Group is small in size, with annual revenue of £110 million in 2018, but it serves a slew of big-name clients like American Express, Ping An, Santander, AXA, Vodafone and Carrefour. This means CPP is diversified in terms of products, clients and geography.
CPP Group’s top-line has continued to grow by double-digits and it is – albeit just about – in the black.
TruFin was spun-out of alternative asset management firm Arrowgrass and offers a variety of financial services in the UK and overseas. Following a recent restructuring, it has four operating companies. Oxygen Finance provides early payment systems to the public and private sectors. Satago Financial Solutions supplies working capital finance to small businesses. Vertus Capital provides business loans in the UK, and PlayStack offers publishing and financing to the console and mobile gaming market. Its latest quarterly report showed revenue almost doubled year-on-year (YoY) to £2.1 million, but this small-cap is unsurprisingly still in the red.
Zaim Credit Systems (ZAIM)
Zaim Credit Systems is another unique company. The London-listed business is the holding company for Zaim Express, a Russian fintech firm focused on the microfinance sector. It was launched after the country introduced a new law which allowed companies other than banks to provide loans to individuals and businesses. At its heart, it provides small loans typically under RUB30,000 (equal to around £350-£400) to Russian consumers. Zaim Credit Systems only listed last November at 2.5p each but has managed to find much higher ground since then.
GLI Finance (GLIF)
GLI Finance is a small-cap stock that has invested in a range of alternative financing platforms that serve small and medium-sized businesses in North America, Europe and Africa. Its core business, Sancus, provides asset-backed loans and bridging finance to UK businesses. Its fintech investment portfolio is comprised of short-term lender Finexkap, SME loan comparison platform FINPOINT, peer-to-peer lending site Funding Options, US corporate lender LiftForward, Spanish SME financier MytripleA, and US solar project lender. Others include Open Energy, a peer-to-peer platform in Cameroon. The GLI Finance share price is a fraction of the all-time highs seen in 2015.
Sure Ventures (SURE)
Last on the list, and the smallest with a market cap of just £5 million, is a fund that invests in businesses making software for three high-growth areas: fintech, the Internet-of-Things (IoT), and augmented reality/virtual reality - Sure Ventures. Sure Ventures prefers to invest in Series A (or the first) funding rounds and to provide seed capital, but does not restrict itself from investing in later stages. This means it can capture larger stakes in the businesses it invests in – between 20% to 50%. While it isn’t purely about fintech, the fund does provide a way of gaining exposure to the sector as well as other high-growth areas, giving it a diversified portfolio. One of its investments, Immotion Group, has already gone on to go public.
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