In This Edition:
UK fintech soars despite global investment slowdown
Why the next fintech wave in Latin America will focus on SME Lending
Digital banks are racking up users, but will they ever make money?
Marketplace lenders may be forced to rely on sophisticated investors due to incoming 10% rule
PayPal accuses marketplace lender of trademark infringement.
UK Fintech Soars Despite Global Investment Slowdown
According to KPMG’s latest Pulse of Fintech report - a biannual report showcasing key activities and trends within the fintech market globally - just $37.6bn was invested in global fintech firms in the first six months of the year, down from $62.6bn in the first half of 2018.
According to KPMG, this drop-off in investment reflects the lack of blockbuster deals, global uncertainty and regulatory changes in China. However, it added that this decline might be short-lived given the “massive M&A deals on the horizon”.
Furthermore, the UK’s fintech sector bucked this trend by raising $3.06bn in new funding from venture capital firms and private equity investments, and seeing $3.9bn worth of investment activity overall.
The UK fintech sector accounted for six of the top 10 deals in Europe, and UK businesses won 68 per cent of the overall venture capital and private equity investment in Europe during the first half of the year.
Why the Next Fintech Wave in Latin America will focus on SME Lending
According to the recently published report ‘Fintech in Latin America 2018: Growth and Consolidation’, by the Inter-American Development Bank and Finnovista, the number of fintech startups in the region rose 66% from 2017 to 2018.
Fintechs are rising up in the lending space to solve the SME funding gap in Latin America. According to the report, lending solutions represent 60% of the total business models of Fintech startups in the region, whether they are balance sheet or peer-to-peer, crowdfunding solutions (30% of the total), or factoring solutions (10%).
Widespread Internet penetration in Latin America is making it easier for more and more people to start their own businesses; however, traditional financial institutions have not kept up with the demand for digital solutions that fit the needs of today’s SMEs.
As a result, many Fintechs are now filling this gap, using advanced analytics and machine learning to provide lending, credit, and financial management solutions that help the region’s SMEs save time and reduce costs.
Digital Banks Are Racking Up Users, but Will They Ever Make Money?
Neobanks are burning through cash in an effort to become global challenger banks. Some could be profitable on a per-user basis if they weren’t spending so much on customer acquisition.
Artificial intelligence could be a path to profitability for these start-ups, whether that’s through a subscription service, broker-style fees for making recommendations, or some other way of making money based on the reams of data that their systems collect.
Some critics argue that fintechs are only surging thanks to a small number of novel features, which older banks will soon copy, if they haven’t already, to retain their millions of existing customers.
However, digital banks counter that even if the incumbent banks do catch up to where the fintechs were a few years ago, their tech will be too clunky to make the leap when the next round of innovation comes along.
Marketplace Lenders May Be Forced to Rely on Sophisticated Investors due to Incoming 10% Rule
Retail investors are at risk of being shut out of the P2P lending sector due to the FCA’s investor marketing restrictions which will come into force this December.
The new rules say that platforms can only offer products to sophisticated or high-net-worth investors or everyday investors who certify they will not put more than 10 per cent of their portfolio in P2P.
A number of P2P lending platforms have a minimum investment of £1,000, which would mean that individuals must have at least £10,000 in total to invest across a variety of asset classes. Official statistics indicate that most UK adults do not have this amount of money to invest, which could effectively bar them from certain platforms.