Issue #7. London's Fintech Dominance, The Tech Impact of India's Student Surge & World's Mobile Data Appetite
Why London appeals not just to traditional finance but also to fintech; how the Indian tech industry leverages its booming student population; and a dive into global data consumption patterns.
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Today’s issue is a bit longer than usual, which may be a good or a bad thing, depending on who you ask.
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Why London is Cornering the Fintech Market
When discussing major innovation hubs, the Bay Area obviously springs to mind first, and it's no surprise. Following that, we often think of places like New York, Boston, Austin, and emerging hubs like Bengaluru. Yet, London seems to fly under the radar. Now, I'm not saying people overlook London as a global city or financial epicenter, but its role as a startup hotbed gets less limelight.
It's a tad unfair, especially since in 2022 the venture capital industry invested $22.2 billion in London-based startups. Sure, that's a bit behind New York's $36 billion and the Bay Area's $75.3 billion. But no other European city even hit the $11 billion mark, with Paris trailing at $10.7 billion.
Okay, let’s say we all agree that London is a major player in the startup industry. So, what's the big deal about it? For me, it's all about the unique startups that pop up in the city, particularly in the financial sector.
Just like companies create a strong brand supported by corporate culture to draw a specific clientele, cities do the same by nurturing distinct industries.
Let's quickly dive into London's significance for fintech:
In 2022, London attracted £7.8 billion in fintech funding, outpacing both San Francisco and New York.
Crunchbase data shows that of the 17,412 venture-backed finance startups from the last decade, 6.7% hail from London. That’s pretty close to New York's 6.1% and the Bay Area's 7.7%.
During the same period, 15 London-based companies hit the $50 million revenue mark, while New York had 16.
In 2021, a significant 46% of all startup investments in London were in fintech.
2/3 of UK's fintech firms are based in London.
So, what makes London such a pivotal fintech hub? Here are four key reasons:
1. An existing infrastructure. There's no denying that London's status as one of the world's top-2 financial hubs significantly aids the fintech industry. With 300 banks headquartered here, London handles 38% of the global foreign exchange trade, and the financial sector generates 19% of the city's economic output.
The established financial sector boosts London's growing fintech scene, not only by providing a ready workforce but also with funding and M&A opportunities. The world of finance is evolving rapidly. Just a decade ago, terms like fractional shares, request to pay, and BNPL weren't on most people's radars. These aren't just niche concepts; they're consumer products used by millions. Traditional financial institutions, recognizing they can't craft solutions for every consumer niche in-house, are choosing to adapt. Many do so by investing in or partnering with fintechs, like the collaborations between Form3 and Barclays and Caura and Lloyds Group.
2. Policies targeting fintechs. I'm no banking guru, but at a basic level, Britain's policies for the financial sector seem to fall into two categories: those aimed at the broader finance sector and those targeting fintechs specifically. We won't dive into the first category, as it's more about maintaining London's dominance in European finance. Instead, let's focus on some fintech-specific policies that have already borne fruit:
Authorisation with Restrictions (AwR) is a policy allowing newcomers to secure a limited banking license without needing to raise extensive capital. This isn't a UK-only policy, but the UK's version caps the deposit size at £50,000. Through this, entities like Revolut, Mozo, and Recognise Bank have obtained their licenses.
Open Banking standards, introduced in 2016, grant startups access to leading UK banks' data, including transaction details. Practically, this means companies like BuildMyCreditScore can offer solutions that improve credit scores by sharing transaction data with banks. Startups can either aggregate this data independently or utilize platforms like Bud. This has also spurred the creation of infrastructure providers like OpenPayd and Ozone API.
The Regulatory Sandbox was established to assist companies in testing their innovations in real markets. The Financial Conduct Authority (FCA) supports these companies through the testing phase, ensuring they navigate the regulatory landscape effectively.
In terms of funding, the UK has unveiled a £1 billion fund to rival Silicon Valley. Supported by Barclays, Mastercard, and the London Stock Exchange Group, this fund targets investments in fintech firms during their Series C rounds or later.
3. A big and diverse market. As Europe's second-largest city, London is incredibly diverse, with over 300 languages spoken daily. In 2021, the city saw the launch of 114 foreign investment projects — more than double the number in Paris. So, whether catering to the wealthy or the working-class, local businesses or international corporations, London offers a vast market for assessing product scalability.
4. Leadership in specific sectors. Due to regulatory and market dynamics, London has emerged as a frontrunner in particular fintech niches. For instance, the UK introduced the Faster Payment Service in 2008 — a real-time payment network for individuals and businesses. They were also among the early adopters of contactless cards. Such innovations paved the way for companies like GoCardless and Curve. Given that London houses the fifth-highest number of billionaires globally, wealth management platforms like Moneyfarm and Nutmeg have also found a fertile ground here.
Nevertheless, London's fintech landscape isn't without hurdles. Issues like talent shortages and capital constraints could pose significant challenges. But, at least in the short term, these issues seem unlikely to dethrone London as a leading fintech hub.
Tech Industry's Response to India's Student Surge
There’s this great idea by Shaan Puri that he dubs the one chart business. The concept is that one chart alone can represent your business plan, encapsulating your entire idea. It's a compelling notion, and today I want to share a story about one such business (hopefully not the last).
Good Host Spaces, an Indian firm, offers hostel campuses for students. It currently boasts 5 campuses and 25,000 beds, with ambitions to expand to 50,000 beds soon. Within these campuses, students can hit the gym, consult a doctor, do laundry, play table tennis, watch a film in a theater, and more. It’s akin to a mini-city packed with every amenity you'd need. All these services are streamlined via an app, whether you're ordering food or advocating for more washing machines in the laundry area.
The company addresses two issues. Firstly, it upgrades student living standards with contemporary facilities. Though there are some complaints, I'd guess traditional housing offered by Indian universities might not match up. Secondly, they cater to the burgeoning demand, leading us back to the one chart business concept.
Due to factors like population size, youthful demographics, overall economic ascent, and high-quality education, the student population in India is projected to soar from 40 million in 2020 to 92 million by 2035. If we do a bit of math, Good Host Spaces' organic growth over the next 13 years should hit around 85% — that's a steady 6.5% annually without any marketing.
This immense potential hasn't escaped the world's top investors. Just this past July, it was announced that Goldman Sachs is on the hunt for a buyer for its 70% share in Good Host Spaces. Despite a challenging global economy, notable entities like Brookfield Asset Management, Alta Capital, and Keppel have shown interest. And it appears Alta Capital might clinch the deal, purchasing the housing platform for a sum between $300-350 million.
Clearly, housing isn't the sole sector set to benefit from rising student enrollments. Reselling academic books, tutoring, job platforms for graduates — these services are poised to flourish, given the market's expected doubling in the next 15 years.
As we’ve discussed two weeks ago, the Indian middle class is projected to grow from 31% in 2022 to 61% by 2047. Combine this with a surge in student numbers and higher disposable incomes, and we're staring at a market ripe for billion-dollar opportunities.
Global Patterns in Mobile Data Usage
Smartphones have become an integral part of our day-to-day lives, and you might think that data consumption would correlate with income: the more people earn, the more data they use. But it turns out that while this is somewhat true, it's not entirely accurate.
Here's the overall picture:
On average, people around the world use 16 GB per month on their mobile devices.
India, Nepal, Bhutan (basically, let's just say India), and MENA lead the way with 26 GB per month.
The most developed countries consume an average of 20 GB per month.
The least developed countries consume about 4.7 GB per month.
What's behind these consumption patterns? Several reasons stand out.
1. Development matters. Watching TikTok or YouTube isn't a survival need. If you have discretionary income, you might spend more on data-heavy apps. But if funds are tight, you'll likely spend less on these apps. More importantly, a less powerful phone also means you'll probably use less data-intensive apps. Thus, North America and Europe consume more data compared to many other regions.
2. Tariff flexibility. We don’t see much discrepancy between Asian countries and the developed world. One reason is tariff flexibility, which telecommunication companies in Asia are notorious for. Vietnamese Vinaphone offers over 200 different packages: with or without data, with 4 GB or 6 GB limit per day and other variations. This allows consumers to decide where to invest their money. If they want to watch TikTok all day, they can pick a package that suits that, without breaking the bank. Moreover, some packages offer unlimited data for social media — the primary data guzzler.
3. Time spent on a smartphone varies by region. The more you use your phone, the more data you consume. Asian countries lean more towards smartphone usage compared to Europe or North America. For instance, users in Thailand and the Philippines spend over 5 hours on their smartphones, while it's under 3.5 hours in the US or Germany.
4. Consumption differences. As mentioned, social media, especially videos, drive the bulk of data consumption. Social media users are typically younger, and developing countries have a younger demographic. Consequently, individuals in the developing world spend more time on social media, consuming more data.
5. India. And then there’s India, where users use up 26 GB per month, largely thanks to Reliance Jio. There’s a great article on the Reliance conglomerate by Packy McCormick. The gist is: Jio started as a 4G data-only operator, bypassing traditional telephony. With this approach, they managed to lower costs and offer substantially cheaper prices to users. Merely four years after its 2016 debut, Jio ranked as the second-largest mobile provider globally, facilitating a 30x data consumption surge.
One last point I'd like to raise concerns growth. Interestingly, despite consumption disparities, growth rates among regions are fairly consistent. Yes, areas with higher consumption display lower growth rates, and vice versa. However, these variances are minimal, with general projected growth hovering between 15-25%. Meaning that universal aspects influence the growth, not just regional factors.