In the first of a series of articles on FinTech deals, Andrew Macnab, FinTech Deals Lead at PwC UK, reviews the FinTech deals landscape and reflects on the trends in the market.
The size and number of FinTech deals in the UK, Europe and globally has continued to grow significantly in recent years, driven by a range of converging market trends that are creating a hugely positive backdrop for investment into the FinTech sector. At the heart of this growth is the pressing need for the deployment of modern technologies across the entire financial services industry.
At PwC, we expect there will be more and bigger deals in the future, presenting a range of opportunities for investors (including private equity, corporates and other investors), as well as FinTechs themselves.
Whichever way you look at the industry, the trends suggest an increasing volume and value of FinTech transactions across the UK, Europe and the rest of the world:
While the term ‘FinTech’ has become ubiquitous with trendy startups who aim to disrupt financial services with the latest technology, the definition in practice is far broader. Existing under a banner that’s been in use for the past ten years are a variety of company types, providing a wide range of products and services. We observe five main categories with increasing levels of maturity and enterprise value:
FinTech Landscape: Enterprise Value vs Maturity
Early stage start-ups
companies which are still refining and testing ideas and preparing for second or third round funding e.g. Cleo, Penta, Synapse, Openfin, etc.
companies which have established brands and, in some cases, proven economics, and are at later stages of funding e.g. Revolut, TransferWise, Monzo, etc.
Financial technology firms with proven economics
more mature and established companies. There are thousands of businesses globally in this segment e.g. FNZ, eFront, Avaloq, Calypso, etc.
larger and more traditional technology and service providers to the financial services industry (many of these have been around for decades) e.g. Mastercard, Visa, FIS, Fiserv, etc.
Ecosystems with some FinTech activities
large, platform companies which are potentially both buyers of FinTechs and market entrants e.g. Amazon, Google, Facebook, Ant Financial, etc.
FinTech companies broadly position themselves as either technology led or financial services led. Historically, their focus has been on delivering efficiency gains through technology.
In recent years, however, there has been a pivot towards disrupting incumbent financial services providers’ business models.
FinTech Landscape: Driver for Use of Technology vs Heritage
There are a range of factors which are driving investment and deal activity in the FinTech sector. Most significantly, the market is large and growing, with a range of investment options from mature companies with robust financial profiles to early stage start-ups with significant potential for scaling up.
FinTech market drivers
The wide variety of asset types across different market sectors also provides a wealth of opportunities for investors in FinTech. Most transactions are primarily conducted by either private equity firms, established financial / general technology firms, or established financial services providers:
Key 2020 FinTech deals themes
In summary, we believe the trends described will continue to drive opportunities for more volume of deals as well as larger deals in the FinTech space in the next few years.
Our market-leading FinTech deals teams brings subject matter expertise across the entire FinTech market. With a diverse range of financial services and technology experts from across Europe, the US and Asia, we’re close to the latest developments and market trends. Moreover, as the FinTech sector grows, we continue to develop our capabilities to support firms across the lifecycle of deals.
We can leverage our knowledge of the FinTech market and our deals expertise to help you identify opportunities to create value across the entire deal lifecycle from strategy, origination and deal execution to post-deal integration. Our deep sector knowledge, gathered from working on hundreds of FinTech deals, coupled with our unrivalled C-suite relationships, mean we can be your trusted FinTech deal partner and provide you with unique insights and opportunities, whether you are an investor, corporate, entrepreneur or other market participant looking to maximise value from the sector.