Slowly but surely a revolution has been taking place in financial technology, or fintech as we call it these days. These days fintech’s hottest sphere is not in Bloomberg terminals but in disruptive cloud startups, using the Internet as a route around the dedicated lines of the past. Globally, fintech investment has more than tripled over the past three years, according to a recent study by Accenture. It’s risen from $928 million in 2008 to $2.97 billion in 2013. Fintech investment has increased at — check this out — more than four times the rate of overall VC investment.
The U.S. is still the dominant market for fintech investment value, but the fastest growing region for fintech deals is now the combination of the U.K. and Ireland, where deal-volume has been growing at an annualized rate of 74% since 2008 vs 27% globally and 13% in Silicon Valley. What’s rarely discussed is that fintech companies often based themseleves in Ireland to take advantage of the low tax regime, but then sell into London’s enormous financial markets.
We saw the early signs of the fintech rise back in 2010 when big firms like American Express, Bank of America, Goldman Sachs, and JPMorgan Chase & Co. got behind the FinTech Innovation Lab, an annual accelerator program run by the Partnership Fund for New York City and Accenture. It continues to this day in London and New York.
But that was just one of the tell-tale signs. In the last few years a raft of new companies has emerged in the world financial centres.
In London the biggest so far is TransferWise, which has announced it transferred over a £1 billion (1,000 million) since launching only three years ago. It has also now launched its Android app. TransferWise is backed by Peter Thiel’s Valar Ventures, SV Angel, IA Ventures, Index, Seedcamp, and TAG.
The company, rumoured to be partnering with Facebook, has seen the total volume of cash sent it sends internationally jump from £125 million to £1 billion inside just 11 months.
TransferWise’s peer-to-peer system matches senders of money abroad with those who want to send money back (it supports 176 currencies). Thus it gets around the cost of actually transferring the money. To date the company estimates it’s saved customers around £45 million.
TransferWise is rumoured to be one of three London start-ups talking to Facebook regarding a move into financial services. But it’s not the only fintech company doing well.
Dublin-based peer-to-peer currency exchange CurrencyFair raised a further $2.5 million led by Frontline Ventures. Last year the 2009-founded company claimed to have done £500 million in money transfers since it began trading. Lithuanian-based TransferGo, which also operates a P2P model to undercut the banks, has launched in the UK.
And the area of alternative business lending is also one that London startups are attacking.
Sources say Funding Circle just passed £250 million volume and Marketinvoice is said to have to have hit £150 million volume recently. Meanwhile, peer-to-peer lender Zopa recently announced a £500 million volume.
As consultancy firm Accenture says, the growth of a London fintech cluster is being fueled by the city’s traditional strength in the financial services sector.
Another example is GoCardless. Founded by Hiroki Takeuchi, Tom Blomfield and Matt Robinson, the business solves the problem of late payments for small and medium enterprises by allowing them to use direct debit systems, usually the preserve of large organisations. It’s now the UK’s biggest direct debit provider, processing $200 million worth of transactions each year and growing 700 per cent in 2013.
Meanwhile, new fin tech incubators are being launched, most recently by pan-European accelerator Startupbootcamp, which will be based in London, a stone’s throw from the City’s financial district.
TransferWise founders Kristo Kaarmann and Taavet Hinrikus threw a party last night in London to celebrate. The latter was the first ever employee of Skype, and came up with the idea after being frustrated about trying to send money back to Estonia from London.
As the free drinks flowed on a rooftop bar overlooking the gleaming towers of the ‘Square Mile,’ it was clear that fintech has become a new force in the world of startups.