The financial technology industry may currently be experiencing challenges, yet analysts at investment bank Peel Hunt maintain a positive outlook. They compare the sector’s evolution to the dot-com crash of 2000, asserting that “fintech is the new internet.”
Analysts suggest that the bursting of the fintech bubble in 2022 has helped to eliminate weaker business models, allowing the more resilient vendors to focus on profitable growth. Gautham Pillai and Advika Jalan from Peel Hunt state, “Despite its highly compelling long-term investment thesis, the fintech sector has recently fallen out of favor. We believe this perspective is myopic. The development of fintech resembles that of the Internet sector, with reactions in 2022 reminiscent of the Dot-Com crash of 2000. However, similar to the Internet sector’s recovery over the following two decades, we believe that 2022 has successfully filtered out the less viable business models in fintech.”
They emphasize that leading Internet companies like Amazon, Meta, and Alphabet now constitute a significant portion of the Nasdaq. “Given the current cost-of-living crisis, which is likely to drive fintech usage further, we anticipate the fintech sector will significantly increase its presence in the FTSE 100 over the next decade, establishing it as the new Internet,” they argue.
The UK boasts a substantial fintech ecosystem with over 2,500 companies, although a small percentage are publicly traded. Peel Hunt predicts the emergence of high-growth categories in business-to-business (B2B), embedded finance, open finance, and RegTech. Additionally, they highlight that specialized fintechs targeting specific verticals and customer segments have the potential to dominate their niches and leverage that success to expand into adjacent markets.
Pillai and Jalan emphasize that the UK fintech landscape offers a significantly better value proposition, substantial market opportunities, and a chance to become dominant in specific areas. This scenario points to hypergrowth potential that is likely to be sustained over the long term, as these fintechs often operate within total addressable markets (TAMs) ranging from billions to trillions of pounds.
Peel Hunt recommends that public investors seeking exposure to innovative, high-growth private UK fintechs consider the dedicated venture fund Augmentum Fintech. Among listed companies, analysts express favorable views on Alfa Financial Software, Eckoh, Equals, Eurowag, Boku, and Network International.