Our view on what's happening in Fintech in London at the moment.

1. February 2017
Fintech Market Perspective
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2. Local market fundamentals are robust and vibrant
Massive UK TAMs
● UK Financial Services generate in excess of £200B of revenue annually
● UK TAM only public unicorns in Fintech and Proptech - Rightmove, Zoopla, MoneySupermarket have
combined $9bn value
● Internet is 12% of UK GDP (0) (top of G20) with 89% Internet penetration (1)
● Largest and most profitable international market for established and emerging US tech companies
● UK tech accounts for $140bn of current public and private market cap (5)
Highly Evolved Ecosystem
● Regulatory Support: Supportive regulatory environment (FCA Sandbox and Innovation Centre) and
government support for Fintech in the Summer Budget
● Talent & Expertise: Over 1.5m tech employees in UK, with 320k in London (4), more of whom work in
Fintech than NYC or SF (5)
● Funding: London has more resident early stage capital than any global tech hubs other than Bay Area
and China (2)
● 3-in-1: London combines the digital innovation of SF, New York’s Wall Street, and Washington DC’s
policy setting
Sources: (0) The $4.2 Trillion Opportunity: The Internet Economy in the G-20 Report (1) Office of National Statistics (2016) (2) European Unicorns 2016 -GP Bullhound (3) 2013/14
HESA Student Record (4) Google Finance (5) http://invest.london/sectors/fintech
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3. Fintech/Proptech were the most popular sectors
for funding in in 2016
● Investment raised by UK tech companies totalled £1.38bn in 2016, according to the Tech City News
Investment Tracker
● The data, which takes into account rounds of £400,000 or more raised by UK-founded tech
companies, shows 204 rounds were raised last year.
● 34 of the 204 rounds being secured were raised by FinTech companies. These included the £17.2m
raised by Velocity, the £20m by TransferWise, Iwoca’s £21m and Nutmeg’s £30m.
● 17 Proptech companies securing funding last year, including Student.com, which raised £46.3m.
Sources: http://techcitynews.com/2017/01/26/uk-tech-investment-trends-2016/

4. The Big 4 UK Banks all have negative NPS scores

5. But Fintech is still a tiny % of UK Financial Services
The total UK FS market generates revenues of c. £200B p.a - ONLY 3% is from
Fintechs. There is room to grow.
Sources: ONS

6. Insurtech is emerging as a newly active sector
Even more massive UK TAMs
● The UK has the largest insurance market in Europe and 3rd in the world, contributing c. 25% of of total EU premium income
at over £350b annually (1).
● Headquartered in the UK:
○ 2 of the 10 largest insurers by assets (2)
○ 3 of the largest 10 general insurance brokers by revenue (3)
○ 9 of the 10 largest reinsurance brokers by revenue (2)
Incumbents are recognizing the need to innovate
● 77% of organisations surveyed by Marketwatch say their appetite for radical innovation had increased in the previous year
● 66% of companies polled say they lack innovation skills, with 60% citing a fear of innovation as a significant impediment.
Funding is pouring into the space
● Investment in UK insuretechs increased over 3x in 2016 over 2015 - faster growth than any other country.
Sources: (1) ABI (2) III 3) http://www.insurancebusinessmag.com/uk/news/technology/the-future-of-insurtech-will-insurance-have-an-uber-moment-59933.aspx

7. Incumbents are actively working with start-ups

8. They are moving earlier stage

9. The UK is the 3rd destination for funds after China
and the US.

10. So where’s next for Fintech?

11. Life is hard for a lot of people
Personal indebtedness is up
● UK students graduate with average debts of £44,000 - the highest in the English speaking world, ahead of the US
($32,000), Canada (£15,000) and New Zealand (£20,000)
● People in the UK owed £1.512 trillion at the end of November 2016. This is up from £1.460 trillion at the end of November
2015 – an extra £1017.04 per UK adult. The average total debt per household – including mortgages – was £55,982 in
November.
Savings and homeownership are down, especially for young people
● 9.61 million UK households have no savings
● Home ownership rates have halved for 25-34 year olds over the last 20 years, with average prices now 7.9x salaries (3)
Inflation and wage stagnation are exhausting people’s resilience
● Inflation in the UK hit a 2.5-year high in January
● Real Wage growth has flatlined for a decade
● 0 hours contracts are the new normal for many
Sources: (1) bbc.co.uk (2) http://themoneycharity.org.uk/media/May-2016-Money-Statistics.pdf) , (3) Independent

12. Young people have been especially hardly hit
British workers aged 22-30 have seen their real wages fall 7% vs. over 60s whose earnings have grown
11% since 2007 (Source FT)

13. Saving Money while improving customer experience
Building what Sarah Tavel at Greylock calls a 10x company (i.e. a 10x better customer experience) while
saving customers money is key for successful fintechs to appeal to new generation of users, who have
been feeling the pinch and who expect a seamless experience.
UK Companies providing cheaper access to services (FX, loans) or saving tools in this space include

14. Managing your money better and more cheaply
The first generation of robo-advisers promised low-fee money management, while
new structures are providing ways to access or manage existing asset classes at
low cost.
UK companies helping consumers in this space include

15. Increasing Resilience
With less asset ownership and lower disposable income, young people are not buying insurance at similar
rates to the previous generation.
Innovators are developing:
- New interfaces for interacting with existing insurers
- Insurance products for underserved segments, or
- Reducing costs via new structures, e.g. on-demand microinsurance, peer-2-peer or affinity groups or
merging IoT hardware to reduce loss rates
UK Innovators in this space include:

16. Prosumerisation is leading to transformative
businesses being built in the B2B space
B2C customers have been at the forefront of Fintech transformation but employees and users have driven
a consumerization of B2B financial services software, as business users expect the same level of
slickness.
UK innovators in this space include

17. While developer frustrations are leading to an
improved back office
Developer frustration with legacy APIs plus new regulation around PSD2 is
leading to innovation in back office bank and accounting rails.
UK innovators in this space include
codat

18. A work on Brexit - challenge and opportunity
Challenges
1. The UK's continued access to the single market and "passporting" rights;
2. Continued access to top quality talent; and
3. Access to investment for FinTech businesses to grow.
Opportunities
1. London’s advantages (regulation, location, time zone, financial hub, and tech and entrepreneurship ecosystem) are
not easily replicated elsewhere in Europe.
2. Clear government support for a thriving fintech sector, including potential for greater deregulation, while there is a
clear will to increase exception talent visas.
3. There is now over $4b of high quality start-up capital in London, upstream of tax incentives which promote start-up
investment, while the British Business Bank appears to be stepping up to increase investment, with loan injections
into FundingCircle, MarketInvoice and as the largest LP in ADV’s new £200m fund.
4. The last generation of Fintech unicorns was build in the aftermath of the 2008 financial crisis. In periods of
uncertainty, the best entrepreneurs thrive.

19. Appendix: UK Tech competitiveness
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20. 20
London tops list of entrepreneurial European cities - 6 UK
cities in European top 20
For Startups

21. London ranked #1 in 2016 PwC Cities of Opportunity Report
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Cities of Opportunity 7 analyses the development of 30 global cities, and
through their performance
Source: http://www.pwc.co.uk/industries/government-public-sector/insights/cities-of-opportunity-7.html

22. Outside of the US, London is the biggest city for venture
investment - before Beijing
Sources: The Global Cities Where Tech Venture Capital is Concentrated

23. UK Q4 tech update
Macro
● UK tech deals hit record in 2016 despite Brexit effect
● Most active startup verticals: Fintech, proptech, AI
● Amazon makes first ever drone delivery in the UK
M&A/ Exits
● Ctrip acquires Skyscanner (Edinburgh, UK) for £1.4B
● FreeAgent (LG4) raises £10.7m on AIM IPO
● Softbank acquires ARM (Cambridge, UK) for $32B
Funding
● New London HQs set up by: Facebook, Snapchat as new European HQ
● New UK data centres set up by: Amazon, Microsoft, IBM
● Accelerated Digital Ventures (ADV) launches £150m to invest across the UK
● Deliveroo raises largest UK round, a $275m (£210m) Series E in August
● Softbank launches $100B Vision Fund managed by UK investor
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24. Investment Size Capital Fund Size: <$50m $50-150m $150-300m $300m+
Growth ($50m+) $2bn+ DST ($1.7 bn)
Index ($1.25)
Vitruvian ($1.4bn)
Series A+ ($8-20m) $1bn+ Felix ($120m)
MMC ($150m)
Mosaic ($140m)
Notion ($120m)
Octopus ($140m)
WhiteStar ($70m)
ADV (>$200m)
Balderton ($305m)
BGF Ventures ($260m)
Accel ($500m)
Atomico ($750m)
Eight Roads ($366m)
EQT (€500m)
GFC ($1bn)
Index ($500m)
Seed ($2-3m) $300m+ Backed ($30m)
Forward ($13m)
Hoxton ($40m)
Initial
Playfair ($30m)
Connect ($60m)
Episode1 ($60m)
Frontline ($40m)
Passion ($64m)
Kindred ($57m)
Accelerators ($500k) Barclays Techstars
EF ($40m)
Seedcamp
Telefonica Wayra
There’s now over $4bn of quality start-up capital in London
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25. UK has huge potential for enterprise technology. Largest UK
companies have average IT budget of $1.27B each.
Note: (*) Partial list of top 47 companies
Source: Public company data, Gartner % IT Spend by Industry (2012)
List of super-size UK companies*
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26. In the UK, the top 100 largest companies have
a total market capitalization of $2.7 Trillion
and employ over 5,580,000 people and spend
well over $60bn a year on IT
Source: Public company data, Gartner % IT Spend by Industry (2012)
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27. 27
UK has largest per capita Internet economy

28. Creating meaningful hubs and producing great tech companies
across the UK
London
Manchester
NewcastleEdinburgh
Cambridge
Oxford
Source: http://venturebeat.com/2016/09/25/9-things-you-didnt-know-about-the-uks-tech-scene/
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