2017 has been quite a year for UK Fintech companies. A lot of money chasing not so many opportunities has driven prices sky high, helping to break the normal correlations between high valuations and strong and sustainable business models. Spend a year coding in your bedroom, and maybe someone will offer you £50m for your efforts!
As a group of partners who have been working in financial services and technology since the early 1990s, we have a strong sense of déjà vu: Fintech just now reminds us of the investment frenzy phase of the dot com bubble in the late 90s. Bitcoin is another example of widespread ‘risk-on’ behaviour in the market.
Many Fintech companies we see fall into the build-a-better-mousetrap category: yet another banking platform, a slightly different payments engine, the umpteenth Blockchain implementation, etc. Their finances are underpinned by investors bankrolling spending, not by a sustainable business case.
We don’t think the UK Fintech bubble has long left before it bursts. For us, the most likely cause of the bubble bursting will be the next UK recession caused (mostly) by the impact of Brexit.
When the next recession hits, Fintech investment will evaporate, with the following consequences:
We genuinely congratulate all those Fintech company owners who managed to sell out (even partially) in 2017 - your timing (luck?) is impeccable. For those of you who have not, perhaps now might be a good time to put up a for-sale sign.
From a Tier 1 banking / financial services perspective, it will soon be time to get your cheque book out to snap up some Fintech bargains. While many view the emergence of Fintech as a threat to the traditional business model of the incumbent banks, Fintech is just another opportunity:
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