According to various sources, the FinTech sector is driving a record hike in venture capital invested in UK start-ups, mainly based in London. London and Partners, a public-private partnership created with backing from the Mayor of London and designed to promote the Capital outside the UK, announced in July 2015 that of the $1.47bn (£940m) VC funding raised during the first half of the year 2015, $1.18bn (£750m) was invested into London businesses and of that, 40% was being directly invested into local FinTech - that is an investment of $465m (£300m) in this particular sector. FinTech businesses based in London, including Funding Circle, Azimo, WorldRemit and Currency Cloud, raised $472m (£302m) between January and July 2015. Tech companies in general raised 80% of total funding and 70% of deals. Out of all the venture capital investment going to tech firms in the UK, London receives 80%. VC funding 11 has increased tenfold since 2010. Nowadays FinTech companies have greater longevity than before; in the past start-ups were created with the long- term aim of fitting into a big company – in short, to be acquired. Now many FinTech start-ups are created to satisfy demand in a niche and succeed in their own right rather than by being bought by a competitor. During the past few years, new companies have been keen to take advantage of the momentum, holding on to IPO, and receive more private funding due to the booming investment atmosphere within FinTech. However the growth in FinTech funding and innovation will generate a new cohort of companies big enough to start acquiring others – or with the scale to make them meaningful bolt-ons to existing large players. IPO activity, however, is expected to be patchy. The booming payments sector has already seen deals and is expected to see more. But less mature sectors such as peer-to-peer lending may need more time before consolidation takes off. “There is no doubt it is going to be a bigger market, and we expect to see more M&A. These businesses are growing rapidly, so it clearly will be a bigger portion of the overall market,” said Markus Boser, head of technology, media & telecoms banking for Europe, the Middle East and Africa at JP Morgan.12 The UK scores highly as an attractive location for global FinTech. The size of the market opportunity in the UK is significant due to a large domestic and technologically sophisticated customer base, and in London’s position as a world leading centre for institutional financial services. The UK financial services sector, which accounts for approximately 9.4% of UK GDP (£140bn), is one of the largest globally, and more active than those of the UK’s 13 continental European peers. The UK also scores highly due to the availability of capital, although there are gaps at the IPO stage where we have not seen much activity over the last three years. UK investment in PayTech and FinTech Investor interest in the UK PayTech sector has been increasing for the last five years. On average PayTech companies founded five years ago have received $80m each from investors so far. According to a study by London & Partners, the official promotional body for the capital, London attracted 62% of the money invested in UK tech companies by venture capital firms, underlining its dominance of the fast-growing sector. The FinTech sector accounted for close to a quarter of the total raised. The San Francisco-based company Index Ventures, was the most active investor in London technology firms, ploughing $345.6 million into 12 companies in 2015 including peer-to-peer money transfer firm Transferwise. According to this research, the UK PayTech sector average initial funding is lower than that of the US in absolute figures throughout the five year period. However, due to the relative size of the countries, average initial funding received by the UK PayTech sector would be higher, with investor interest now on a par. 11 Source: Accourt research 12 Source: FT Partners 13 Source: UK Government 2015 EPA WHITE PAPER, PAYTECH INVESTMENTS, COPYRIGHT © MAY 2016 7