London threatening San Francisco’s fintech unicorn dominance, research says

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Alexander Spatari | Moment | Getty Images
City of London financial district with Royal Exchange building.

London could soon overtake San Francisco as the fintech (financial technology) unicorn capital of the world, according to a new study.

It noted that London’s fintech sector received more venture capital (VC) funding than any other EU city in 2018, securing 39% of all European fintech funding. Berlin’s fintech sector lagged behind slightly, securing 21% of the cash, while Paris came in third with 18% of the overall funding.

According to Innovate Finance, the U.K. is a world leader when it comes to securing VC investment in fintech, ranking third globally behind China and the United States. Global VC investment in fintech last year reached a record $36.6 billion, Innovate Finance’s data shows, which was secured across 2,304 deals — a 148% year-on-year increase.

London’s top fintech unicorns include Revolut, TransferWise, and OakNorth. The report flagged challenger bank OakNorth as one to watch, noting the company’s “phenomenal” income growth from £77.1 million ($100.81 million) to £177.6 million in just 12 months — a year-on-year revenue increase of 268%.

Earlier this year, SoftBank led a $440 million investment in OakNorth, which increased the fintech firm’s value to $2.8 billion.

Elsewhere in the sector, Monzo is reportedly close to securing $130 million from a U.S. investor that would double its value to £2 billion.

Fintech’s growth is impacting the U.K.’s traditional banking sector, the report also noted, with their core revenue streams coming under attack.

“The rise of smartphones and 4G means that increasingly, digital banking is an option, significantly reducing the barriers to entry for new entrants,” the report’s authors said. “It is only now, with the rise of the fintech unicorns, that the banking sector has woken up and started to adapt to the new paradigm.”

It predicted that by 2020, more than half of U.K. payment service providers would be digital-only.

“For millennials who grew up with mobile devices (fintech) is particularly appealing because they want to conduct financial transactions the same way they would share pictures or apply for a job,” James Murray, director of financial services at Robert Walters, said in the report.

“The pace of change has been so rapid over the past decade that the perception of digital banking has shifted from an option to a requirement,” he added.

However, the report warned that Brexit could create barriers to fintech growth rates, as any hard-border scenario could shrink the U.K.’s talent pool.

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