Investment in the UK’s financial technology (fintech) firms has grown by 500% in the past three years, compared with 133% for Europe and 170% for the US, says a new report.
Since 2018, UK fintechs have also outstripped the US and Europe in terms of total investment deals, sealing nine major deals over £1m in the first quarter of 2020 alone. This is compared to six and four in the US and Europe respectively in the same time period.
The figures come from recruitment firm Roger Walters and market analysis experts Vacancy Soft, which published their findings in a report, Fintech: Challenger to competitor, on 28 May.
The UK’s fintech market, however, remains firmly London-centric, despite the report noting tech roles in banking had increased 50% since 2017 in regional cities like Manchester, Birmingham and Leeds.
In 2018, for example, 45 of the UK’s 50 fintech deals worth over £1m involved London firms. Although the UK’s total deals nearly doubled to 96 in 2019, bringing in $48bn worth of investment, only eight of these were into regional businesses. In the first quarter of 2020, London fintechs generated almost as much investment at $114m as they did for the entirety of 2017 at $148m, according to the report.
This makes London the second most attractive destination for fintech-related venture capital, second in the world to only the US.
“If the government are serious about levelling up the country to catch up with London, then serious thought needs to be given into how and why London based businesses remain so much more attractive to VCs. Work is already being done in Birmingham with HS2 and within Manchester, Leeds and Liverpool to grow the Northern Powerhouse,” said Ahsan Iqbal, director of technology at Robert Walters.
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“In the past few years, we have seen regions outside the UK establish their own tech hubs and as a result are holding onto talent. With the skills now existing in abundance in the regions, attention needs to turn towards getting fintechs to move or start up here.”
The report also identified borrowing and lending, messaging and communication, and payments as the three most popular fintech products and services being offered in 2020.
“Fintechs were not initially seen as direct ‘competition’ to traditional banks – with their products and services differing vastly. However, over the past 12-18 months we’ve seen fintech’s apply for banking licenses which means they can now expand their offering to include overdrafts, guarantee deposits, and the ability to set up direct debits,” said Tom Chambers, a senior manager of technology at Robert Walters.
“Perhaps the most drastic change was governments swift action to ‘shake up’ traditional lending and allow fintech companies to be an official loan provider for the government Covid-19 bailout scheme, introducing fintechs to the masses.
“As fintechs creep into traditional banking territory, and financial services continue to embed technology into their processes, the sectors stand to become indistinguishable in the next year.”
The report added that fintechs focused on lending are best place to ride out the coronavirus crisis, because of their capacity to work in ways that traditional banks cannot.
“As normal restrictions on lending are waived to enable companies to ride out the crisis, artificial intelligence will play a key part in enabling the financial services sector to provide simultaneous support to thousands of businesses – at a rate far greater than the capacity of their current underwriting team,” it said: “As a result, AI-driven fintech lenders will be the biggest ‘winners’.”
Another consequence of the pandemic could be yet another significant increase in the UK’s adoption of online banking, which already had some of the highest adoption rates in the world – reaching an all-time high of 73% in 2019.
“Lockdown and social distancing measures mean that banks have had no choice but to scale back their retail operations, instead pushing customers towards digital platforms,” it said.