The UK is fast becoming the destination of choice for FinTech companies
Future of Fintech According to Accenture the UK and Ireland is now the fastest growing region for fintech investment globally.
Deal volumes here have been growing at 74 per cent a year since 2008, compared with 27 per cent globally and 13 per cent in Silicon Valley. During the same period, the value of fintech investment in the UK increased nearly eightfold, to US$265 million in 2013 – a rate of 51 per cent a year, nearly twice the global average and more than twice that of Silicon Valley.
The size of the prize is huge. Independent research from EY, commissioned by UK Trade & Investment, estimates the annual revenue generated across payments, software, data and analytics and platforms in the UK is £20bn.
So why are so many fintech companies – both home-grown and from overseas – choosing to set up in the UK?
The Fintech market in the UK
The UK is a uniquely well suited location for fintech. EY research published in June this year found that the UK’s growing strengths in fintech are due to the presence of a large and technologically sophisticated customer base; good availability of business capital; a supportive regulatory approach; excellent financial services infrastructure, and London’s position as a global trading hub.
And underpinning all of this is of course the fact that the UK is the world’s leading global financial services centre and the most internationally focused market place in the world. It is the number one destination for Foreign Direct Investment (FDI) projects in Europe and recognised as one of the easiest environments in which to do business in the world.
The Government’s ambition is for the UK to lead the world in developing fintech. It has taken a strategic decision to support the fintech industry in the UK, which is not only a destination in its own right but a springboard to internationalising and penetrating new markets. We want to be the world’s best environment for the development and commercialisation of fintech businesses, new fintech models and disruptive innovation. The Government is ensuring that the UK has the appropriate regulatory framework, the right tax system and the best infrastructure to support this ambition.
It also offers hands-on, practical assistance in helping companies trade abroad and invest in the UK. UK Trade & Investment, the Government’s international business development department, works with UK-based businesses to ensure their success in international markets and encourages and supports overseas companies to invest in the UK.
The UK financial services sector is one of the largest globally. UK consumers are open to new, innovative models for delivering financial services both within and outside the traditional banking system. They also spend much more on e-commerce than people in Germany, France and the USA.
The regulatory framework is also of critical importance. The UK regulator, the Financial Conduct Authority (FCA), supports the Fintech industry, providing transparency and creating a level playing field.
The Government’s ambition is for the UK to lead the world in developing fintech
The FCA’s Project Innovate shows the regulator wants to ensure that fintech businesses operating in the UK are supported by the UK’s regulatory environment. As part of the project, the FCA has said that it will open its doors to any company that is developing new business models that fall outside of current regulation.
Many different sources of finance are available in the UK. The fintech sector is well served by angel investors, many of whom have worked in financial services, have the required skills and experience to understand fintech business, and are excited by the market opportunities.
UK venture capital funds invested between £300 million and £400 million in 2012 in fintech companies. More recent deals include Transferwise securing a £25 million round, and Spanish bank Santander is establishing a new US$100 million fund to back fintech start-ups, which will be managed out of London. Private equity investors are also well established in the UK, with over 130 funds registered.
The future of FinTech
The thriving fintech community in the UK is evident by the number of new accelerators and incubator schemes like Techstars, Startupbootcamp, Level 39, and the launch of the new fintech industry body, Innovate Finance, which aims to accelerate the UK's leading position in the global financial services sector.
The Government is also looking to the future, with the Government’s Chief Scientific Adviser leading a review into the future of fintech. The review will look at the technologies, enablers and barriers that will shape the future of the fintech sector up to 2025, and the policy implications for the government.
All of this, together with a long history of innovation, makes the UK a hotbed of creativity and the destination of choice for any fintech business looking to succeed globally.