Woodford’s picks to profit from fintech disruption

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Woodford Investment Management has outlined its stock picks to benefit from the £300m potential of fintech, including peer-to-peer lenders, online property platforms, challenger banks and crowdfunding platforms.

The financial sector has “layer upon layer” of intermediaries and is ripe for disruption and disintermediation, Neil Woodford’s investment firm said in a blog post.

The UK fintech industry is forecast to be worth £300m by 2020, according to the Confederation of British Industry.

“Fintech is a concept that’s been around for the best part of a decade, but has yet to deliver the sort of massive disruption that we’ve seen in other industries. But there is a difference between the way that tech companies have broken up other industries and how fintech firms are looking to disrupt the world of finance,” says Paul Lamacraft, fund manager at Woodford Investment Management in the blog post.

“Most importantly, fintech start-ups aren’t trying to replace banks and insurance companies wholesale, but simply to do bits of their business better. This ‘parts rather than whole’ concept is crucial to understanding the opportunity that fintech presents.”

Among Woodford’s picks is Ratesetter, which lets lenders choose the rate of interest they wish to charge.

It is also invested in P2P Global Investments, which invests in online P2P lending platforms and loans across geographies and borrower type, as well as crowdfunding platform Seedrs.

“One of the effects of the financial crisis was a massive tightening up by the banks in an effort to reduce risk. This has made them far more reluctant to lend to small businesses and individuals than in the past,” says Lamacraft.

In the real estate sector, Woodford is invested in Purplebricks, which combines an online platform with a team of real estate agents, for a “hybrid” alternative to entirely online platforms.

Woodford also invested in challenger bank Atom Bank while it was still seeking regulatory permissions needed to launch.

However, Lamacraft says cybersecurity is one of the major risks for fintech firms, as well as demands on the available internet spectrum. While these are also risks for incumbent financial services companies, he says, it is much easier for a new company to embed the latest technologies to address cyber security threats than for existing businesses to retrofit them.