David Duffy, FinTech envoy for the government and a judge for the Tech Nation FinTech programme, shares his thoughts on some of the challenges facing FinTech in the UK.
The UK is a great place for FinTechs, but we shouldn’t be complacent. London is the FinTech capital of the world, a legacy of its position as Europe’s most developed financial services market and the second biggest capital market in the world.
The sector in question is worth more than £6.1bn and employs 61,000 people – that’s as many as New York does and the same as Singapore, Hong Kong and Australia combined. Meanwhile, some of the UK’s fastest growing unicorns – those startups worth at least $1bn – are in the FinTech sector, including Transferwise and Revolut.
Investors’ appetite for FinTech is strong because consumers’ service expectations of their financial providers are rising and new technology is offering greater convenience and choice. Not even the uncertainty caused by the 2016 vote to leave the EU seems to have tempered expectations for FinTech. In 2017, the UK sector attracted more than double the amount of venture capital than it did in 2016, raising $1.8bn.
In June it was revealed that card and contactless payments are now more popular than cash; providing a good example of when new technology is slow to be adopted at first, then can reach a point of accelerated mass adoption. Meanwhile, the Bank of England Governor painted a picture in his Mansion House speech of a modernised financial services sector, underpinned by thriving FinTech companies.
However, we should be in no doubt that other nations are also aware of the value of and opportunity in fostering FinTech. This rising tide of FinTech interest is good for all; however, each FinTech ‘hub’ faces stronger competition to attract the best FinTechs from around the world. Competition is coming from Dublin, Amsterdam, Warsaw, as well as Paris and Berlin.
Buoyed by President Macrons’ drive to make France a start-up nation, the French want to be the leading initial coin offering (“ICO”) jurisdiction and the French government has created a €10bn FinTech start up fund, that will seek investments over the next three to five years. BNP Paribas has also created a fund to invest in FinTech start ups, particularly those using Artificial Intelligence, Blockchain and Cybersecurity and other French institutions will surely follow.
Germany’s FinTech sector is also ramping up a gear. Two of Europe’s top five FinTechs are from Germany – N26 and Raisin. N26 bank, which launches in the UK this autumn, has raised $160m from a group of investors led by Tencent. That’s one of Europe’s biggest ever FinTech raising and the biggest ever for a German company.
How to stay on top
To stay relevant to customers and offer better, slicker services, major financial services players – banks and insurers – should be looking at investing in FinTechs and developing partnerships with them. To keep ahead in this competitive market, it is more important than ever that the UK leverages its strength in financial and professional services, to continue building a globally ambitious FinTech sector.
Areas that we particularly need to work on are renewing and strengthening the pool of talent. Not only do we need to make sure that a steady stream of well qualified people graduate from our universities, but we must make sure that younger children are getting the best qualifications to take them into career paths in tech.
FinTech companies spring up in all parts of the UK and, if we want to spread the benefits of the growing digital tech sector right across the whole country, we need to connect these regional start-ups so that they can benefit from shared experience and wisdom. Tech Nation has launched a FinTech programme for the first time, which is actively seeking startup founders from each of our regions to apply. The programme will give them great access to experts and investors who have already been through the start-up journey and can share their knowledge.
We have an opportunity to build flexible new services from the ground up that are appropriate for the way we live today. Making financial services accessible to a wider range of people is a key measure of success for innovators.
The UK has the FinTech track record and more potential future unicorns than any other European country, according to recent data from Tech Nation and Dealroom.co. However, we need to keep investing and supporting our FinTech entrepreneurs across the whole of the UK if we are to stay ahead of the competition.