Fintech Struggles Cast Doubt on London's IPO Market Revival

In 2023, Europe’s fintech sector faced significant challenges, grappling with concerns regarding growth and margins. Share prices of prominent payments companies like Adyen and Worldline witnessed a slump, while falling valuations became commonplace in private sector fundraisings. These hurdles, compounded by the lackluster performance of the region’s listed banks, raise doubts about the ability of fintechs and neobanks to ignite an IPO revival in London.

Despite the setbacks, optimism persists, especially in London, which boasts a rich reservoir of fintech unicorns with considerable potential. Recent reports suggest that Santander-backed currency group Ebury is contemplating a £2 billion listing in London, joining the ranks of successful listings like Wise, which attained a £9.2 billion valuation through a direct listing in 2021.

Although the path to a successful IPO appears challenging, recent market sentiments suggest a shift. Investors are increasingly receptive, marking a potential turning point from previous years' lows, notes Fahed Kunwar of analyst Redburn Atlantic. However, the list of potential IPO candidates, primarily neobanks characterized by rapid customer growth but minimal profitability, faces hurdles in achieving successful public offerings this year or even next.

For instance, Monzo, the UK's largest neobank, recently raised £340 million from private investors, indicating a reluctance to explore the public market soon. Given Monzo's nascent profitability and the modest multiples at which UK banks trade, other neobanks like Starling, Zopa, and Atom face similar challenges.

Meanwhile, buy-now-pay-later providers such as Zilch and Klarna, alongside one-stop-shop Revolut, await their turn in the IPO spotlight. However, Revolut's struggles with late accounts and Klarna's rumored US listing indicate a delayed entry into public markets. Similarly, Zilch, with reported revenues of £30 million, might need to bolster its scale before considering an IPO.

Amidst these challenges, consolidation deals emerge as a likely alternative for fintechs eyeing public listings. While the road to IPO remains uncertain, the potential for scale and profitability could steer the fintech sector towards a promising future.