I been asked not to write about robo-advice this time because apparently several other Johnny-come-latelies already are. Well, that’s fine. Fine.
Instead of that, let’s talk about financial technology – or fintech – more generally. London, which is in England, which is a country that got knocked out in the group stages of the 2015 Rugby World Cup, is becoming fast known as a world hub for fintech startups and incubators. Venture capitalists are pouring squillions into companies armed with nothing more than an ironic Atari T-shirt, a record bag and a tricked-out MacBook Pro. Headlines include ‘14 Reasons Why London Fintech Rocks!’, ‘Got A London Fintech App? Have Some Money!’ and ‘No, We Don’t Understand It Either’.
There is a huge amount of heat in this market, which naturally sounds alarm bells. Headlines include ‘Is London’s Fintech Bubble About To Burst?’, ‘Look Out London, The Fintech Bubble Is About To Burst!’ and ’14 Reasons Why The Fintech Bubble Must Burst Soon!’
Interestingly, dynamic thermic transfer between a heat source and a liquid can cause bubbles, so if we think of the fintech market as a liquid, and heat as heat, then this could totally happen. That, people, is science.
Whenever you see clusters of activity like this in the new digital economy, it is a fair bet that those canny MBA-toting entrepreneurs have spotted a market which has grown fat, is serving its customers poorly and is ripe for the plucking. Sound like any markets we know?
Interestingly though, the top 10 investments in fintech haven’t been aimed at long-term savings and investments or protection at all. Of the £357m invested so far in these companies:
•£10m went to Seedrs, the crowdfunding platform backed by Neil Woodford
•£135m went to peer-to-peer lending
•£126m went to money transfer companies including TransferWise
•£12.2m went to an online pawnbroker, £12.9m to a small business lender, and £12.9m to a credit rating platform.
Investment firms, platforms, adviser-focused robos (sorry), and so on, featured not at all. Although it is only fair to mention that, if we had been doing this last year, Nutmeg would have featured with a £24m funding round.
What can we learn from this? Private equity groups, angel funders and venture capitalists are not known for emotional attachment, and our sector of advice and long-term savings and investments is full of emotion. Money pours into those markets where the venture capitalists believe that there is not only potential for disruption, but good profits to be made. Taking tiny slivers of savings and accepting whopping regulatory costs is not any part of that world.
There is no doubt that there are opportunities to improve profitability in many of the heavy technology-based companies in our sector; that’s something that I would expect to see private equity firms getting involved in. Get in, give it a kicking, streamline, and try to achieve 100 per cent return in 3 years. That’s the game – and it will be interesting to see if there is any private equity involvement in any of the ‘up for sale’ rumours in the platform sector.