The fintech market is primed for a “substantial uptick” in IPO activity, according to Boston Consulting Group (BCG), as investor sentiment around UK start-ups rebounds after a bruising 2023.
The global fintech sector is expected to grow roughly five times to $1.5tn (£1.2tn) in revenue by 2030, compared last year, a report from BCG and QED Investors found. It cited a “vast” upside for the sector, with some 1.5bn adults still unbanked and a further 2.8bn “underbanked”.
Over the last two years, there has been 14 per cent annual growth in global fintech revenue, with firms weathering a drop-off in funding spurred by interest rate hikes since the end of 2021.
The UK has been hit particularly hard, with investment in the country’s fintech sector dropping more than a third between 2022 and 2023, according to KPMG.
However, Kunal Jhanji, UK leader on payments and fintechs at BCG, told City A.M. that 2024 had already seen as much UK fintech investment as all of 2023 – which came in at $3.5bn (£2.8bn).
He added that the country remained the world’s second-largest fintech market, behind the US, with around 10 per cent of active companies and a similar share of investment.
BCG and QED highlighted digital challenger banks as “star performers”, including London-based Monzo, which has hit annual profitability and secured $610m (£490m) in new funding this year alone.
While analysts said funding was down by at least half for all fintech segments other than insurance and payments, they believed these challenges reflected a short-term “tempering of investor enthusiasm” and are now starting to abate.
“Following a funding winter, we expect that the need for liquidity, and fairer conditions in capital markets as interest rates moderate, will lead to a substantial uptick in IPO and M&A activity for fintechs,” the report said.
The biggest fintechs intending to go public in the near future include Africa’s largest start-up Flutterwave, Sweden’s Klarna, Australian-born Airwallex and US-based Chime.
Among UK firms, buy-now pay-later provider Zilch, valued at $2bn (£1.65bn) last October, is targeting an IPO next year, while Monzo, valued at $5.2bn (£4.1bn) in May, has also hinted that it will float at some point.
In March, both companies joined a “Unicorn Council” formed by trade body Innovate Finance that is partly focused on making London a more attractive IPO venue for fintechs, although neither has made a firm decision on where to list.
Still, fintech funding across the board has plummeted 70 per cent over the last three years, while revenue multiples – a key valuation metric – have cratered 80 per cent on average, the report said.
“The increased pressure on cash runways and reset of revenue multiples has created an attractive market for fintech M&A on a global scale, and the UK has seen an increase in M&A that has been sustained since 2021,” Jhanji said. There were 41 UK fintech deals last year, up from 37 in 2022 and 22 in 2020.
“Investors have changed their tune, singing the praises of sustainable, profitable growth where they once exhorted fintechs to ‘grow at all costs’,” the report added.
“Consequently, the bar has shifted, putting more pressure on fintechs to tell a longer-term and more comprehensive equity story. In this context – to maximise valuation for IPO and beyond – fintechs need to focus on best practices.”