The first quarter of 2020 was very strong for UK fintech companies with 112 companies raising £1.1 billion, up from £410 million in the fourth quarter of 2019. In the article below we look at how the current economic crisis caused by the coronavirus pandemic has affected the sector thus far and what might be needed for it to maintain its position as the shining light of UK growth.
The UK economy has been hit hard in the wake of COVID-19 with a slump of 2% in GDP in Q1 2020. Although this is not as bad as many economists had predicted, it only includes 2 weeks of lock-down. With the UK entering lock-down much later than many other countries, our Q2 figure is forecast to be significantly worse and with two negative quarters of growth, a recession in the UK will be confirmed.
We are all in the same storm but in different boats
The impact has varied considerably between sectors. Below we look at the UK’s best funded sector, Fintech, which has been a trailblazer for UK growth companies. For more information on the Fintech sector, please see To Fintech and Beyond.
In our blog two weeks ago, Growth Investments Post Coronavirus, we reported on figures by Beauhurst that showed 53% of the country’s high growth companies were under moderate to critical threat. In contrast 66% of fintechs have experienced low impact and 20% have been positively impacted by the current crisis. Early indications are that only 3% of UK fintech companies are either critically or severely affected compared to 17% for high growth companies.
The resilience of Fintech companies
Generally tech companies are more agile, innovative and better suited to remote working. This is crucial as they can adjust to new market opportunities faster than larger, legacy businesses.
73% of UK fintech companies are in London which regionally has the highest proportion of positively affected companies.
The Fintech sector has been well funded meaning many of the most innovative companies have been through a rigorous selection process before being backed through venture capital. This not only means many are sitting on cash but they also have access to a network of investors if required.
20% of fintechs are experiencing a surge in demand as the world moves to remote business and as large, antiquated companies need to digitise fast. Areas seeing highest demand include:
- Artificial Intelligence (AI) – For more information on AI Click HERE
- Automation – For more information on Automation Click HERE
- Digital ID Services – For more information Click HERE
The most negatively impacted fintechs are those that offer payment services and transfers with lower business levels globally resulting in fewer business transactions. Fintechs specialising in international payments have been hit particularly hard following a slump in international trade, travel and FX transfers.
The Future of Fintech
Fintech emerged from the financial crisis in 2008. The current crisis is driving an accelerated digital transformation but it remains essential investment is focused on early stage fintech companies to drive the innovation UK Fintech will need to remain a global leader. In our previous blog we discussed how crisis can accelerate innovation; this is particularly relevant for fintech businesses. Without the required funding of early stage and seed companies, we risk losing a generation of ambitious businesses that will drive the innovation required for the Fintech sector to continue to thrive.
Since 2001, CSS Partners has raised over £175m for ambitious growth companies. Over this time we feel we have developed a good understanding of what investors want.
Investors in CSSP backed companies will often use the significant tax breaks of the UK Enterprise Investment Scheme to help mitigate the risk of venture capital and maximise returns.
Investments offered by CSS Partners are not appropriate to all investors. Our free client service aims to be of benefit to high net worth and sophisticated investors looking to achieve higher returns.
Important Note
The information in this website is provided by CSS Partners LLP. This website has been approved for the purposes of section 21 of the Financial Services and Markets Act by Charles Street Securities Europe LLP (CSSE), which is authorised and regulated by the Financial Conduct Authority. CSS Partners is an appointed representative of CSSE.
Any views or opinions expressed in this blog are those of the author alone, except where specifically stated that they are the views of CSS Partners LLP.
Beauhurst – The impact of COVID-19 on UK Fintech.