London’s booming financial services sector is the biggest in the world, with global banks such as Citi and Barclays lining the streets of Canary Wharf. It’s what make London and the City such an attractive place for financial technology (fintech) suppliers to set up business. Throw in the culture and job opportunities, and London is the first place a startup supplier would think of setting up shop.
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Gordon Innes, CEO of London & Partners, told the UK Fintech Industry Summit 2014 in Canary Wharf that people compare London to multiple US cities. “In America you may have to visit New York for media companies, Washington for regulators and Chicago for services,” he said. “You can do that in one day with a single Tube ride in London.”
Gavin Cleary, chief commercial officer for financial services organisation at government department UK Trade & Investment (UKTI), said that London now has a lot of buyers of financial services technologies, which is a significant draw for fintech companies.
“There’s a very clear message coming from banks,” he said. “They are interested in opening up their supply chain. RBS and Lloyds are doing a lot in this space and recognising the opportunities of having a more efficient supply chain.”
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Barclays is another bank aware of the need to innovate using smaller fintech companies. It recently launched its own accelerator programme, not in the City, but in the heart of east London which is known for its startups.
Outside of London?
But when it comes to the costs of setting up a business, London dwarfs the rest of the country. Some companies even prefer the idea of basing themselves outside the capital to benefit from much lower costs.
Andrea Leadsom MP, economic secretary to the Treasury, told the summit that the fintech industry needs to be UK-wide to encourage economic recovery, and not just London-based: “Don’t just think in London – think about the north, the west, the Midlands, the south west.”
Antony Walker, CEO of TechUK, agreed. He said the thriving fintech sector must be an opportunity for all the UK, and not just London. “It’s entirely possible to build successful tech companies outside London,” he said, pointing to Edinburgh and Leeds as two existing clusters.
But Nektarios Liolios, MD of Startupbootcamp in London, wasn’t so sure. He said fintech startups need support and a community in which to thrive, as well as access to customers and investors, all of which London provides.
“In the US the really exciting early fintech stuff doesn’t come out of the Valley, but New York and Boston,” he said. “In the UK you don’t really have pockets of financial activity elsewhere.
“If you really want to make it big in the UK, you might start more regionally, but you will have to come to London eventually.”
But Eric van der Kleij, head of Level39 in Canary Wharf, where the event was being held, argued that it doesn’t matter where in the UK fintech startups are. He just wants more companies and more entrepreneurs.
He pointed to Manchester as well as Scotland and Northern Ireland as locations that have been very strong for fintech companies.
“Across the UK we have talent pools, but most of them tend to use London as the springboard because people love to be able to fly in easily to do their sales.”
Connections with London
Van der Kleij wants the fintech sector to be UK-wide. His startup accelerator Level39 is one of three fintech-focused incubators in the UK – all based in London. Given that the whole of financial services and the technology sector add up to 14% of the country’s GDP, he believes this is ridiculous. “Let’s start another one somewhere else in the UK and connect them,” he suggested.
Cleary also pointed to Northern Ireland as a fintech cluster, with Citi Group and the New York Stock Exchange setting up offices while fintech firm First Derivatives has just created 484 jobs in County Down.
But he pointed out that communications with London are key for the success of clusters outside the capital.
“We’re big advocates of the potential impact of [high-speed rail line] HS2,” he said. “But it’s about access to markets in general. Your client may not be in London, they may be anywhere around the world, so it’s about having access to international airport hubs.”
Russ Shaw, founder of Tech London Advocates, also hopes that HS2 will lead to a better-connected UK. But it could be Chancellor George Osborne’s plans to extend the rail network with an HS3 connection between Manchester and Leeds that could lead to a fintech hub emerging in the north over the next decade.
Shaw said Leeds has a history of banking and credit agencies and he is already noticing a number of fintech companies growing in this area. He said it will be areas like Leeds with existing talent pools that will produce the best home for these fintech startups.
Those cities will have talent and skillsets that understand financial services really well,” he said. “Because those experts are on the ground, the companies will follow where the talent is going.”
But Shaw said he didn’t expect Leeds to become as big or as vibrant as London. “I wouldn’t expect Leeds to replicate London, but if the two cities are connected, that’s a good thing.”
UK fintech and Scottish independence
While experts at the UK Fintech Industry Summit agreed that Edinburgh and Glasgow are places where fintech companies could thrive, there is a chance that Scotland may no longer be part of the UK in future.
And a vote for Scottish independence come September 2014 is just one aspect of political uncertainty in Britain at the moment, according to Mark Boleat, chairman of the policy and resources committee for the City of London Corporation. The UK also faces uncertainty over its future as part of the European Union.
Boleat said these two political minefields will become a factor in corporate location decisions. “At present that’s having a pretty minimal effect and certainly people aren’t packing their bags and going, but people who are thinking of expanding to the UK or Scotland now have to factor that in.”
It is the uncertainty which is a factor, said Boleat, but that right now that uncertainty is overwhelmed by all the benefits of living in the UK.