Weeks after being granted a UK banking licence, Revolut secured a $45bn valuation on Friday through a secondary share sale by employees. The valuation, which jumped from $33bn in 2021, pushed Revolut ahead of traditional UK rivals NatWest and Lloyds Banking Group, and has increased focus on where the fintech could potentially list.
Revolut – which last month turned a corner with higher profits and timely accounts – could now consider a New York listing, with the UK government set to emphasise London’s appeal.
Attempts to shore up the state of listings in the UK have included a push to encourage more investment in UK companies by domestic pension funds and a big overhaul of rules for London-listed companies by the Financial Conduct Authority. But UK retail investors have continued to vote with their feet, pulling money from UK equity funds which saw £14bn in outflows in 2023, marking the eighth consecutive year of net redemptions according to the Investment Association.
Revolut has not publicly stated whether it will follow its rival Wise, which was valued at nearly £9bn when it listed in London in 2021, while the chief executive of fellow fintech Monzo said earlier this year that it was too early to talk about the timing and location of a possible listing.
Lure of a London listing
Progress on open banking in the UK makes London an attractive listing option compared to other jurisdictions such as the US, said Sumant Kumar, chief technology officer of banking and financial markets, NTT Data UK and Ireland.
“The UK is still the fintech lab of the world […] because it has the highest adoption of open banking,” Kumar said.
“Open banking is the most at scale [in the UK]. If you are a retail bank and you want to experiment with things like open banking and open data, the UK has […] the best environment, infrastructure and the talent; [other] countries are still trying to figure out open banking,” he added.
The “consumer outcome focused” regulatory market in the UK is a further draw to fintechs looking for potential listing opportunities, Kumar said, which sets UK-listed fintechs in good standing to expand internationally.
“I think [the UK has] the most principle-based outcomes […] regulation than anywhere in the world. […] If you build the product right in the UK, you’re more likely to end up without any issues in other geographies, with the right balance between the profitability of the product, but also the consumer needs and consumer safeguards,” Kumar said, referencing Consumer Duty as an example.
However, higher valuations are more likely in the US, where fintechs could opt for an “early bite”, Kumar said. “The cons [of listing in the UK] are obviously from a valuation point of view – the UK market valuation and the US market valuation is different,” Kumar said.
Opportunities for fintech investment in the UK compared with other jurisdictions is a further consideration. Globally, total fintech investment declined from $62.3bn in the second half of 2023 to $51.9bn in the first half of 2024, according to KPMG’s latest ‘Pulse of Fintech’ report, a bi-annual report on fintech investment trends published this month.
This drop signals the lowest six months of fintech investment since the first half of 2020, with the Europe, Middle East and Africa region witnessing the sharpest fall: $19.4bn in the second half of 2023 to $11.4bn in the first half of this year.
“With the new UK government in situ and the potential long awaited drop in interest rates having finally arrived, there are hopes that fintech investment will start to show signs of recovery as we move into the latter part of the year and early 2025,” Hannah Dobson, partner and UK head of fintech at KPMG UK, said in a press statement.
The UK is “number one” in Europe in terms of attractiveness for fintechs, said Kumar. The UK saw the largest share of fintech funding in the Emea region, totalling $7.3bn in the first half of 2024, up from $2.5bn in the same period in 2023.
“The UK fintech market continues to be dominated by the payments sector and the growing popularity of challenger banks,” said Deborah Barta, global head of retail and fintech at digital assets platform Fireblocks.
Bank investment in fintechs
Banks’ fintech investment motivations include reducing operational costs, efficiently deploying new technologies, enriching customer experiences and staying competitive in a fast-moving financial space without having to heavily invest in in-house development, Barta added.
Standard Chartered invested in United Fintech Group this month, following Citi, BNP Paribas and Danske Bank who invested earlier this year.
“While the timing of widespread adoption is to be determined, I also expect banks to continue their investment into blockchain and digital-asset focused fintechs. The superapp-style offering of financial services could become the hub where traditional finance and digital assets converge,” Barta said.
Optimism remains about increased fintech investment, but “conditions will need to change”, Barta added. Influencing factors include the US elections, favourable regulatory clarity emerging in more markets and material rate cuts, she added.
“Until then, fintech investment will likely remain relatively subdued. However, gen AI and payments-related efficiencies may be an exception as businesses are keen to harness the latest technologies to save time and costs.”
