LFP143 – Results From Analysing A Decades Profitability Data On One Hundred UK Fintechs w/Michael Pearson

Michael conducts the most in-depth analysis of Companies House data on UK Fintechs that I am aware of. That earlier this year he partnered with KPMG and Google on his Fintech Funding and Financing study says a lot. So what can we learn from a decades’s data on UK Fintechs?

Well first that only five are making a profit!

Michael recently updated his study which includes nearly one hundred Fintechs.

In this episode we focus on trends in profitability – which are not all as you might expect – although the report covers many more parameters especially around fund-raisings.

After a decade for the longest running Fintechs we should be able to start to draw conclusions. What are they?

Topics discussed include:

  • The history of the report.
  • The progress of a microfinance Startup in Egypt over the past decade
  • Sourcing data from Companies House
  • Selection of parameters – revenue (not all SmallCos have to report!), profitability, capital expenditure, number of employees, all items related to equity issuance (including registrations at Companies House as well as in annual accounts), large shareholdings.
  • Data ranges from being 3-4years up to 10 years old
  • Excel as the greatest tool in modern business history
  • Producing aggregate stats versus breaking those down into subsectors
  • about 50:50 providing services (FinFinTech) or B2B products (TechFintech)
  • small numbers of players once one gets down to egg app banks
  • the five Fintechs making a profit based on most recent data:
    • OakNorth
    • Transferwise
    • Iwoca
    • ClearScore
    • Lendinvest
    • [and Blue Motor Finance which was omitted in the conversation]
  • two young and two older Fintechs
  • lessons one can draw from the data
  • three of these have FS-experienced management teams, two do not
  • the neobanks which are raising huge sums of money and expanding before they have a profitable business at home
  • patterns in the loss making Fintechs
    • 85% reported increasing losses
    • for those Fintechs over 5 years old, 78% are reporting increasing losses
  • anonymised example of a highly praised Fintech that after 8 years only has revenues of £6m and losses of £5m
  • how transformative are these businesses after all?
  • comparisons with dot com bubble
  • Funding Circle’s woes as an example of the leading P2P not having proved that P2P really is disrupting?
    • shareprice down 75% since IPO
    • the company is valued now at less than the total amount of equity that has been invested in it
    • it is still losing a lot of money after 9 years
  • See also Zopa’s recent raise and halving of valuation – these p2ps have done a lot of business volumes but haven’t proved that it is a profitable model
  • cf Iwoca, Lendinvest and OakNorth who are nearby and yet are profitable
  • The importance of small differences in business model on profitability
  • What an experienced Fintech CEO would do tomorrow if he started again re disruption and business.
  • the general Tech valuation, flotation context – WeWork as an exception but there are many like Lyft, Uber
  • There are successful floats – eg Square
  • Payments processing seems to be outperforming other Fintechs
  • As always unsexy niches tend to outperform
  • Michael’s other consultancy activities in thought leadership and strategic research

And much much more 🙂

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