" class="no-js "lang="en-US"> EXCLUSIVE: "The infinitely long life of P.I.E?" - Ron Delnevo in 'The Fintech Magazine'
Wednesday, May 29, 2024

EXCLUSIVE: “The infinitely long life of P.I.E?” – Ron Delnevo in ‘The Fintech Magazine’

Ron Delnevo ponders on the time it’s taking UK fintech to reward its loyal investors and asks if we’re entering Post Initial Excitement phase

I was talking to someone who should know recently, who told me funding for fintechs globally is drying up – even if, in the UK, it was up by nearly a quarter in H1 2022, compared to last year. Their news didn’t surprise me unduly because the noise surrounding this sector seemed to me to have been extremely loud for rather a long time. Are we perhaps, at last, entering the Post Initial Excitement (P.I.E) phase?

Although many others have claimed, in retrospect, to have been a fintech for decades, it wasn’t until 2004 that the term became part of everyday language, after it was applied to a company called Zopa, launched as a UK peer-to-peer lender. So, how is that ‘first’ fintech doing today, 18 years on?

Astonishingly, Zopa remains private, after in excess of a dozen funding rounds, which have raised a total of more than £500million. Presumably, the company has needed all that money because it has changed so dramatically. In 2021, Zopa ceased operating in the peer-to-peer lending market, shifting its focus to award-winning online banking. Far be it from me to criticise a company that is now enjoying some success, but it has to be said that 18 years is a very long time to have remained in private hands, when 25 investors have yet to realise a profit.

And they may have to wait a fair bit longer, since Zopa’s 2022 IPO has apparently been postponed, with the CEO reported to have said that ‘the markets are not there – not for fin, not for tech’. Zopa is not alone in facing such issues.

The next notable fintech to emerge after Zopa was PPRO Group in 2006, a developer of platforms that enable businesses to better use international payment schemes, which has so far raised around £300million from six funding rounds*,with no IPO in the offing after 16 years. Its new CFO joined in June 2022 and will have his work cut out if the 10 investors want to exit early. Only one other fintech founded before 2010 appears on the list of Top 50 UK Fintechs in terms of private investment raised.

The company is Prodigy Finance, again founded in 2006, which operates a global platform providing loans for people studying for a master’s degree abroad. So far, 10 investors have kicked in well over £600million in funding. Reports suggest that Prodigy would like to follow in the footsteps of SoFi Technologies, a US company founded in 2011, which initially specialised in student loan refinancing. SoFi gained a Nasdaq listing in 2021 and, as I write, has a market cap of around $7billion.

Not bad footsteps in which to follow, supposing the path is still available. So, only three of the current Top 50 UK Fintech highest private fund raisers were founded before 2010 – and all three are still making use of the same funding, and yet to secure an IPO or trade sale. Fintech is, of course, well-represented in the list of unicorn businesses – enterprises valued at more than $1billion – of which more than 60 have so far been created in the UK, 20 of which were fintechs.

Interestingly, however, only two of the 17 unicorn ventures that have fashioned an exit from private ownership are fintechs. So there remain 18 privately owned, $1billion-plus UK fintech businesses, a number of which were founded 10 or more years ago and all, presumably, fairly soon in need of an exit from private ownership. The question surely arises as to whether the London – or any other – stock market has an appetite for that number of fintech IPOs?

If not, trade sales would certainly be an option, but many would surely see this as a disappointing outcome. Fintechs were touted as market entrants that could successfully disrupt the traditional banking and financial services industry. A fintech being bought by a bank or, perhaps more likely, Visa or Mastercard, would minimise any disruption caused to the traditional market participants.Of course, the game is not over until the fat investors have exited.

Let’s hope IPOs turn out to be viable exit routes. Traditional financial services is in need of significantly more disruption.

*Values at time of writing


 

This article was published in The Fintech Magazine Issue 25, Page 47

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