Nearly half of finance firms will acquire or partner fintechs in next year

UK financial services firms are preparing to acquire or partner fintechs as they target business growth

About half of the UK’s financial services companies plan to increase investment in fintech through acquisitions and partnerships over the next 12 months.

The findings of a survey of UK finance firms by Lloyds Bank revealed that 46% of companies plan an increase in spending in this area, compared with 32% in the same survey last year.

Two-thirds (66%) of those companies surveyed, which plan to increase spending, said the main driver is to develop new products and services.

Steve Everett, head of payments and receivables for client products at Lloyds Bank commercial banking, said UK fintechs are at the forefront of innovation within financial services. “By partnering with them, the UK’s largest firms are showing they are committed to developing new products and services to meet changing client needs through collaboration,” he said.

Automation and digital investment, as well as core banking system investments are planned for this year by 77% of UK finance sector companies. The technologies being sought are the cloud, application programming interfaces and data science taking in artificial intelligence, with 83%, 77% and 69% prioritising these respectively.

Adrian Walkling, head of financial services at Lloyds Bank commercial banking, said UK financial services firms did not pause technology investment last year when the sector was navigating a significant period of disruption, although they had to reallocate significant resources to ensuring staff could operate from home.

He said that although the pandemic is not over, investments in home working enablement are complete, giving finance businesses the opportunity to invest in technologies to grow the business. “It’s great to see that they plan to do so using both established and emerging technologies,” he said. “Innovation is the bedrock of UK financial services and will help the sector continue to lead the pack.”

Read more about fintech in the UK

In the UK, venture capital investment in the fintech sector has so far this year reached $11.4bn, which is more than double the amount for the whole of last year.

According to Tech Nation, global investment in fintech reached record levels in the first half of the year, totalling $98bn from about 2,500 deals.

Figures revealed by KPMG show that recovery from the Covid-19 slowdown is in full swing. It said that $121.5bn was invested in fintech globally for the whole of last year, with $87bn of that coming in the second half.

The financial services sector is more positive, with 51% of businesses expecting growth prospects in the sector to improve in the next year, up from just 13% last year. A total of 65% expect UK revenues to increase this year.

The survey found that 76% of insurers expected to grow revenues, compared with 56% of banks. Meanwhile, all wealth and asset managers said they will maintain or grow revenues.

Respondents’ renewed optimism is balanced with a healthy dose of caution. “Businesses need certainty on the future operating and regulatory environment to plan for the longer-term with confidence,” said Cynthia Barnes, managing director and head of strategic initiatives and development for commercial banking at Lloyds Bank.

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