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Fintech & British Patient Capital: Part 1

Insights 23 May 2019

At the end of #UKFintechWeek, we sat down with Ian Connatty, Managing Director of Funds at British Patient Capital, to hear his views on the fintech industry…

Can you give a brief overview of the British Business Bank: how does British Patient Capital fit into the Bank’s mission, and how does that mission play out in the fintech space?

As the UK’s economic development bank, the British Business Bank’s mission is to make finance markets work better for smaller businesses. To achieve this, the Bank has a wide-ranging mandate across debt, equity and guarantees.

With respect to fintech specifically, the Bank has provided Tier 2 finance and guarantees to several challenger banks, funding lines to alternative lenders and have also been an investor in VC funds for many years.

I’m from British Patient Capital, which is a commercial subsidiary within British Business Bank, investing in patient capital structures, primarily venture capital (VC) funds. We have a particular focus on the ‘scale-up’ agenda, ensuring there is capital available to the most promising high growth companies across the UK.

About 12 per cent of the British Patient Capital portfolio is invested in fintech, but of the companies that have attained valuations of over $1bn, over half are fintech companies. So, as we think about our mission to finance scale-ups, fintech is an area of the market that is particularly important to us.

British Patient Capital and its predecessors have been investing in UK venture capital for a number of years now. How has fintech evolved in that time?

Fintech first appeared in the Bank’s broader portfolio at the beginning of this decade. At that time, the fintech sector largely produced products serving two main areas: consumer-focused businesses, such as wealth management; and enterprise-based – for example cross-border currency payments and online business loans. Challenger banks were also a feature of this emerging landscape.

These early movers have now matured into the major players of the UK fintech landscape. According to Innovate Finance figures, challenger banks constituted 27 per cent of VC funding last year, with personal finance/wealth management and alternative lending and finance following closely behind, making up 19 per cent and 18 per cent of the market respectively.

More recently we’ve noticed several emerging trends. Firstly, we’re seeing new products that move beyond the initial areas of disruption. Start-ups are increasingly moving into the insurance markets, regulatory and compliance support, and providing capital markets infrastructure and technologies. This is particularly exciting for us, as we see real expertise in these sectors in the UK. We think ‘Regtech’ and ‘Insurtech’ will be growing sectors in the coming years.

Over the last 12 months we’ve also seen more activity in blockchain and cryptocurrency, particularly in the surrounding infrastructure, such as blockchain ‘wallets’.

A second recent feature of the fintech market has been the increasing partnership between start-ups and traditional financial institutions – banks and insurance providers, among others – to digitise their technology stack. We’ve seen this in everything from parsing documents using AI to back-end processing. Some of these partnerships are with technology platforms that have multiple use cases, which blurs the line between fintech and other areas in our portfolio. For example, 38 per cent of our fintech portfolio is also categorised as SaaS.

We think that the fintech industry will increasingly be intertwined with traditional verticals; seeing these wider use cases emerge is really exciting, and we think this will continue to grow.

Read part 2 of the interview.