The fintech — financial technology — sector has emerged rapidly over the last decade. The Confederation of British Industry expects it to be worth £300bn in the UK alone by 2020.
Of course, we’re all familiar with the disruption and ‘disintermediation’ (cutting out the middlemen) wrought by multi-billion-dollar giants, such as Amazon and Uber, but the fintech revolution has been rather more low-key. Fintech companies aren’t trying to pummel the whole financial industry into extinction but are intent on taking sizeable chunks of business from traditional incumbents.
Bloated with layers of intermediaries and widely distrusted since the 2008/9 crisis, the mainstream financial industry is under attack from fintech upstarts that are not burdened with legacy issues and systems and whose reputations are untarnished by the past.
Given Neil Woodford’s long-prevailing dislike of the big banks, it’s perhaps not surprising that he’s attracted by the relatively simple business models and exciting investment opportunities in the fintech sector.
Attractive income stream
Woodford is invested in some unquoted fintech companies, such as RateSetter, a peer-to-peer lending platform, and Seedrs, which opens up venture capitalism “to anyone with an internet connection”. However, he also has two holdings that are listed on the stock market — and very interesting they are too.
P2P Global Investments (LSE: P2P) is a FTSE 250 firm with a market cap of around £700m. Woodford’s team describes the business as follows: “This is a company that invests in a range of online peer-to-peer lending platforms and loans. It uses a proprietary technology system to seek out the highest quality loans available on these platforms. To manage risk, it targets a diversified portfolio of loans to both consumers and businesses across multiple geographies. It can also often invest in the platform providers directly. This leaves it well placed to deliver a stable and attractive income stream to its shareholders.”
Woodford first bought shares in the company at 1,000p in January 2015 but you can pick them up today for 840p. At this price, if analyst dividend forecasts can be believed, the yield for 2017 will be a whopping 11%.
Another to consider
VPC Specialty Lending Investments (LSE: VSL) is in the FTSE SmallCap index but is a decent-sized company with a market cap of around £290m. Its business is similar to P2P’s and like the FTSE 250 firm, considerable quantities of cash flow into shareholders’ pockets.
Analyst dividend forecasts for the current year give another tremendous yield — 9.4% at a current price of 77p. Woodford paid 100p when he bought in the company’s IPO in March 2015.
On the face of it, P2P and VPC look interesting prospects to consider, particularly for investors seeking a high income. But I’d want to understand the sector and these businesses in a little more depth before committing any cash even with Woodford being evidently keen.
If you don’t fancy pureplay fintech, Woodford is also a big fan of companies that combine traditional and fintech approaches. Two of his holdings of this nature that could be worth checking out are sub-prime lender Provident Financial and hybrid property agent Purplebricks.