'The Fintech Reckoning': London's IPO Stock Exchange Slump

Just before the turn of the year in 2022, Hugh Son, a banking and fintech reporter for CNBC, published an widely discussed article entitled The fintech reckoning is here. 

Son wrote that story in a reflective mood, looking back over the astronomical rise of fintech's stock over the past few years. He began the article with a particularly astonishing statistic: in 2021, 20% of all venture capital investments went into fintech, a quite remarkable amount of money.

But, he went on to caution his readers, “you just can’t put that much capital behind something in such a short time without crazy stuff happening" - a quote from Current CEO Stuart Sopp.

2021: a short-sighted fintech free-for-all?

In 2021, over 100 new unicorn companies (non-listed companies with a valuation of over US$1bn) were minted as venture capitalists flocked to invest. That in turn led to hundreds of copycat companies springing up, trying to find a niche in new markets such as neobanks and deferred payment networks to secure similar funds.

Son detailed how many of those new companies went on huge, multi-million dollar marketing sprees to secure customers. This, he believed, was a rather shaky metric to measure success against, but it often help them raise money at "eye-watering valuations".

So, we landed in a place where the fintech sector was flooded with money, excited customers and goodwill. The only problem? Some of the companies hadn't quite thought far enough ahead. Once they had all the tools to become rich, a lot of them didn't know how they were going to turn a profit. 

Hugh explained this in one devastating line: "The thinking: Reel users in with a marketing blitz and then figure out how to make money from them later."

What is happening with London's fintech sector?

Now, almost two years on, we find swathes of London's fintech sector experiencing what Son predicted.

So far in 2024, the London Stock Exchange has seen just 10 IPOs.

By this point of the year in 2023, there had been 18 IPOs in London. Now, that discrepancy doesn't sound too bad, not, at least, until you consider that 2023 was London's worst year for IPOs in almost 30 years.

So, what's happening to London's Stock Exchange, why are there so few IPOs this year, and, most interestingly, where are all the fintech companies?

'After the party, comes the hangover'

In a video interview with CNBC after his article was published, Son discussed this pivotal moment for the industry, summarising things succinctly: "After the party, comes the hangover".

That does seems to have been the case for London's fintech sector. Take neobank Monese as an example. Founded in 2015, it was regarded as having potential to be a future unicorn and received huge backing from HSBC in 2021, amid the flurry of fintech investment. 

Since then it has made a series of losses, leaving its solvency in question. In 2023, HSBC wrote off its minority stake in Monese, just two years after so enthusiastically investing.

Thankfully, Monese has just been acquired by Pockit, another British fintech, which has swooped in to save the day.

So, while the British government and regulators are desperate to see more IPOs on the London Stock Exchange, many companies don't see going public as a risk worth taking, especially when valuations and share prices are in such wild fluctuation.

Instead, we might see more deals in the vein of Monese and Pockit as fintechs look to bolster their financial health: mergers and acquisitions.

More mergers and acquisitions on the horizon

Tim Levene is CEO of Augmentum Fintech, the largest fintech fund in Europe, with 26 fintech companies in its portfolio. As you can imagine, Levene has a real insight into the current strategies of fintech CEOs, many of whom are considering mergers or acquisitions over IPOs, as a way to pay off investors.

He said: “The likely exit for a lot of our portfolio companies will be mergers and acquisitions, rather than IPO. We’d love to see many of our companies IPO, but there’s a huge amount of strategic value in a lot of the fintechs being built.

“I would love there to be 20 or 30 truly disruptive fintechs that are listed in London, but we just don’t have enough data points in the listed market to be able to point to great outcomes that can encourage and incentivise other founders to say ‘Hey, let’s [list] a little bit early.’”

The fact that Praetura Group is the only fintech to float on the London Stock Exchange this year exemplifies the uncertainty around IPOs right now. Therefore, many fintech CEOs see mergers or acquisitions as the safest option in an unstable market.

This means that many of London's fintechs are missing out on the opportunity to really scale up their businesses by going public, but consolidation and small-c conservatism appear to be the name of the game currently. Companies will do this by merging with one another, or by selling up to larger, more established and secure companies.

CNBC's Hugh Son prophesised this back in late 2022. He explained: "As in previous down cycles, however, there is opportunity. Stronger players will snap up weaker ones through acquisition and emerge from the downturn in a stronger position, where they will enjoy less competition and lower costs for talent and expenses, including marketing."

The survival of the fittest

Is there any hope for London's plucky new fintech start-ups, or will they fail to fulfil the promise they showed in recent years?

Bill Harris, founder of nine fintech companies and former CEO of PayPal, believes that the companies with great ideas and bold missions will always prevail, regardless of market conditions.

“Through good times and bad, great products win,” he said.

“The best of the existing solutions will come out stronger and new products that are fundamentally better will win as well.”

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