Fintech startups’ results show they are challenging UK banks
(3 November 2017 – United Kingdom) Fintech firms in Britain have recorded some of their strongest results to date, as they continue to take market share from high-street banks in areas such as payments and lending.
Foreign exchange startup TransferWise revealed that it has raised US$366 million from investors, a record capital raising round for a UK fintech, to finance expansion of its cross-border payments service into more countries around the world.
Meanwhile, newly released figures from the Bank of England and online lender Funding circle showed the fintech lender had for the first time lent more to small businesses in the UK than traditional banks.
Funding Circle carried out £114 million (A$195 million) of net new lending in the last quarter, compared to the £95 million of net new lending to small businesses by the main high-street banks that make up at least three-quarters of the UK market.
The new milestones come after UK fintechs raised more than US$1 billion from venture capital investors in the first nine months of the year, putting them on track to surpass the 2015 fundraising record in the sector, according to data from London and Partners.
“If I was a big bank, I would be really worried about this,” said Samir Desai, co-founder and chief executive of Funding Circle, which last month arranged a record US$230 million of loans to SMEs in the UK, US, Germany and the Netherlands.
“In mid-sized corporate lending, the funds have taken half of the market from the banks and that should be an easier area for the banks to defend than the one we are in for smaller businesses,” said Desai.
“I think we should get 40 to 50 percent market share.”
TransferWise, which services around two million customers, and executes £1 billion in cross-border transfers from 42 countries every month, has been valued at around US$1.6 billion by its latest capital raising round, which takes the total invested to US$397 million.
The company, backed by Virgin’s Sir Richard Branson, former Citigroup boss Vikram Pandit, and US venture capital group Andreessen Horowitz, said it would use the money to expand in Asia and to extend its multi-currency payments card from small businesses to retail consumers.
Taavet Hinrikus, co-founder and chairman of TransferWise, said: “£1 billion is just a slice of the market, which means millions of people are still being ripped off by banks and traditional currency brokers every day.”
Hinrikus and Kristo Käärmann, who set up the company in 2011 because of frustration at the cost of sending money home to Estonia from the UK, have used the fundraising to sell “a single-digit percentage” of their 40 percent holding in the company.