Fintech: A Comparison Between the Subsectors
Farzana Haque, 17 August 2023
In 2023 alone, the fintech sector saw 108 announced equity rounds, totalling £675m. Though the overall funding trend shows a decline in the sector as a whole, some subsectors within fintech are thriving. The fintech sector is wide ranging—from payment and banking to regtech and insurtech—and within these subsectors, there are some exciting trends.
In this article, we’re going granular. For a look at the funding statistics of some key fintech subsectors, read on.
Alternative finance
Within fintech, alternative finance—referring to any financial services outside the traditional financial system—is arguably one of the largest subsectors, with 185 active companies operating in the UK. Alternative finance is also a fast-growing sector, with active company numbers increasing by 360% over the last decade.
The sector has already seen some successful exits with two IPOs and 27 acquisitions since our records started in 2011. For example, Funding Circle— an online marketplace where savers and investors can directly lend to small businesses—was listed on the London Stock Exchange back in 2018. More recently, LendInvest—an online peer-to-peer lending marketplace for real estate mortgages—was listed on the Alternative Investment Market in 2021.
As for the 27 exits via acquisition, the largest consideration paid was for Kantox, an online peer-to-peer forex trading platform targeted at SMEs and mid-cap funds. Kantox was acquired by BNP Paribas for a total of £103m.
The top two investors within this subsector are crowdfunding platforms Seedrs and Crowdcube. Seedrs are the leading investors, making 84 investments in alternative finance companies. Other top investors include Future Fund and Augmnetum Fintech.
Atom, number six on our fintech top 50 ranking, is the best-funded alternative finance company, having raised a staggering £635m.
Regtech
Regtech is one of the smaller subsectors of fintech in the UK currently, with 41 active companies. Regtech refers to the technology used to manage regulatory and compliance processes within the financial services sector. Remarkably, we’ve seen an impressive growth rate of 242% over the last decade.
Although it’s a relatively niche sector, there have already been six successful exits via acquisition by regtech startups in the UK. With a consideration of £41m paid by US-based company OneSpan in 2018, Dealflo has been the most expensive UK regtech acquisition.
The UK’s biggest regtech by total equity raised is Featurespace. This company develops software to analyse customer activity, aiming to predict future individual behaviour.
Partaking in four investments each, we’ve found that the most prolific investors in regtech companies are Cambridge Angels, Illuminate Financial Management, Nesta Impact Investments, Octopus Ventures and Touchstone Innovations.
Insurtech
Another relatively small subsector is insurtech, with 32 active companies. Insurtech refers to the use of technology to disrupt the traditional insurance sector. Zego, a 2016 founded startup which provides pay-as-you-go courier and food delivery insurance for drivers, is the UK’s biggest insurtech by equity raised.
Insurtech too has witnessed exits via acquisitions. So far, there have been eight acquisitions of UK-based insurtechs, including that of By Miles (acquired by Direct Line Group), Digital Fineprint (acquired by hubb) and Ripe Thinking (acquired by Aquiline Financial Services, AFS).
Participating in a quarter of all active insurtech company fundraisings is Seedrs, the most prolific investor in the sector. Coming in second with seven investments each are Anthemis and Insurtech Gateway.
For an in-depth look at the sector, read our article “Top Insurtech Companies in the UK”.
Blockchain and cryptocurrency
Complimentary subsectors of cryptocurrency and blockchain make up a significant proportion of fintech companies in the UK, with 115 active blockchain companies and 107 cryptocurrency companies.
In the past five years, the combined blockchain and cryptocurrency sector has grown by 130%. Recently, despite difficult microeconomic conditions, the sector is seen a resurgence. Indeed, our Equity Investment Market Update, Q1 2023, found blockchain to be one of the only tech sectors to see an uptake in deals in Q1 2023 from Q4 2022.
To date, the sector has seen five exits via acquisition including that of Vo1t by US-based digital currency trading services company Genesis Global Trading and AiX by Blockchain.com.
The aptly named Blockchain.com is the biggest operator in the sector by equity raised, having raised £356m in the 12 years it’s been around. Top investors in the sector include Seedrs, Crowcube, Index Ventures, Lightspeed Venture Partners, Digital Currency Group and Octopus Ventures.
Artificial Intelligence
With 159 active companies, artificial intelligence (AI) is another big subsector in fintech. For a more detailed deep-dive into the technology, read our guide to artificial intelligence and machine learning technology.
Raising a total of £398m in equity, Thought Machine—which develops a cloud-based banking platform, enabling banks to centrally manage a range of financial systems and products—is the biggest company by equity raised in this subsector. Much like the fintech sector as a whole, AI has also been fast-growing, witnessing a 78.7% growth in active companies over the last past five years.
There have been 19 exits via acquisitions of AI companies within the fintech sector to date. The largest of which was Velocity Black by Capital One Ventures, where a sum of £236m was paid in consideration.
Among the most prolific investors in the sector are Crowdcube (participating in 13 fundraisings), Entrepreneur First (participating in nine fundraisings) and IQ Capital Fund (parting in eight).
Interested in learning more about AI? Check out our articles on the top early-stage AI startups or the most funded London-based AI companies.
Challenger banks
Following the financial crisis of 2008, challenger banks—sometimes known as neo-banks—emerged as a method of personalised banking with real-time payments and competitive pricing.
Currently, there are 21 active companies in this sector. Revolut, which was established back in 2013, is the largest by equity raised, having raised £1.27b. Participating in nine fundraisings within this sector, Passion Capital is the most prolific investor. Partaking in eight rounds each, Seedrs and Toscafund take second place.
So far, the sector has seen one IPO, that of Metro Bank in 2016. Back in 2010, when Metro Bank launched, they were the first new bank in the UK in over 100 years. Just six years later, the company listed on the London Stock Exchange with a listing price of 2000p per share. The sector has also seen an acquisition—that of Chetwood Financial by Elliott Advisors in 2018.
Newest players on the scene
In the last 24 months, there have been 93 new fintechs incorporated in the UK, of which 89 have already raised equity rounds. Below we’ve profiled the top five startups, ranked by the amount of equity raised.
01.
BVNK
Founded: 2021
Total raised: £32.8m
Investors: Concentric, Kingsway Capital, Avenir Growth Capital, Base Capital, Nordstar, The Raba Partnership and Tiger Global Management
BVNK provides a payment service that aims to integrate crypto and fiat currencies.
02.
Super Payments
Founded: 2022
Total raised: £28.8m
Investors: Accel, LocalGlobe and Union Square Ventures
Super Payments develops AI-based payment processing software to help businesses increase their sales and provide benefits to online customers, including cashback.
03.
Sequence
Founded: 2021
Total raised: £28.1m
Investors: Firstminute Capital, Passion Capital, 9Yards Capital, Andreesen Horowitz (a16z), Crew Capital, Dig Ventures, Fin Capital, Luno Expeditions and Salesforce Ventures
Sequence develops APIs which allow users to create billing and payment stacks.
04.
Paytrix
Founded: 2022
Total raised: £19.9m
Investors: D4 Ventures, Leaders Fund, Bain Capital Ventures, Better Tomorrow Ventures, Clocktower Venutes, Fin Capital, Motive Partners, The Fintech Fund and Unusual Ventures
Paytrix develops a payment API to allow companies to scale internationally using one payment interface.
05.
Pillar
Founded: 2021
Total raised: £13.0m
Investors: Backed VC and Global Founders Capital (GFC)
Pillar develops financial tools to enable customers to develop an international credit score.
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