[ 14 June 2018 ]
Fintech – the convergence of finance and technology – is an area in which the UK is an undisputed world leader.
The Government loves fintech
From banking apps and paying by mobile, to crowdfunding and peer lending, to credit referencing and foreign exchange – fintech is everywhere. The UK is at the forefront of its development and has been ranked first in the world due to the strength of its fintech ‘ecosystem.’
As home to one of the world’s major international finance centres, a substantial technology hub, as well as being the political and regulatory centre, London has formidable advantages which few other cities in the world can match. But fintech activity is spread across the UK, notably in the Edinburgh/Glasgow and Leeds/Manchester corridors.
In the space of a few years, it has become a significant industry, employing 61,000 people – that’s around five per cent of the total financial services workforce. That’s just in the emerging businesses - there are huge teams inside the big financial institutions doing what can also be termed ‘fintech.’ Its boosters reckon that it's one of the UK's big post-Brexit chances.
The link for the full speech is also here.
And finance loves fintech (well, certainly venture capital does)...
Venture capital money has poured into young British fintech companies. In 2017, $1.8bn was invested in 224 deals – a 153% increase on the previous year. More than half that money came from overseas VC firms, with major investments in companies such as TransferWise (£211m), Monzo (£71m) and Revolut (£177m).
That’s only one part of the story. Private equity has surged into fintech investments. Several IPOs of fintechs have taken place on the London Stock Exchange this year. The banks, insurers and other large financial institutions are investing in, buying and partnering with fintech companies.
...and it's cool
There are plenty of fast-growing companies – average revenue for fintech firms in the UK grew by 22% from 2014 to 2016. And some are already global names. Started in 2011, over 3m customers use TransferWise and transfers £2bn per month through its network. Funding Circle, which started in UK in 2010, is now the largest online small business loan provider in the world. This article picks out 12.
Come play in our sandbox
The words ‘progressive’ and ‘regulation’ don’t often appear in the same sentence.
Uniquely, the Financial Conduct Authority (FCA) has a statutory objective to promote competition, as well as to protect consumers and financial markets. This gives it an important legal bedrock from which to think about promoting innovation.
Take the regulatory ‘sandbox.’ Launched by the FCA in 2016, it is a pioneering British model that has now been adopted around the world. It creates a ‘safe space’ for businesses to try out new products and services with real customers in the live market under controlled conditions – but without immediately incurring all the normal regulatory consequences of pilot activities. Now running its fourth ‘cohort,’ it is the largest operation of its type in the world. The FCA is now creating a global version.
Regulation shouldn’t be viewed as some competitive arms race. What’s important here is that the FCA gets as many other jurisdictions lined up with it, so that it can really shape the wider international agenda. It also helps to open up more markets for UK-based fintechs.
Glass ceiling breaker moment
Has to be said that fintech has not been a poster child for gender equality. But things are changing fast. MarketInvoice, another fast-growing British fintech company, announced this week the appointment of Rija Javed as its Chief Technology Officer (CTO). Joining from Wealthfront, a Silicon Valley start-up, she will be one of the first female CTOs at a UK fintech. Doubtless she will also be listed in the next Women in Fintech Power List.
Could it all go pear-shaped? Fintech’s key Brexit issue is how to keep and attract talented people. It’s been estimated that 40% of founders of fintech companies in London do not hold UK passports; 28% of all employees of fintechs are from the EU27 (although according to the most recent figure, the US, India and Australia have been the top three countries from which the UK has drawn its talent.) Talent is what will restrict the growth of the sector. So it’s pretty important that for talent to want to stay here – and to be able to, easily. The announcement of the removal of doctors from the Tier 2 visa system may well help the fintech sector.