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Mapping out London’s Financial Tech sector

By some measures up to $3.2bn has already been invested in financial technology in London, making it one of our key emerging sectors.

Ian Dowson has analysed 374 companies worldwide and mapped out what he calls the UK’s Fintech Strategic Wheel. In his first column he assesses the current state of Fintech in London.

The big players

Monitise Plc is the current leader, a specialist in mobile money solutions worth over a cool £500m on the London Stock Exchange, Fintech is something that London and the UK does well.

London’s leading segments

London is strong in lending innovations, funding platform design and peer to peer lending exchanges; however in every segment there are highly creative emergent startups such as FundApps, The Currency Cloud, miiCard and Iwoca.

Each stage of the financial services value chain is becoming revolutionised by new innovative companies its very much like online retailing was 10 years ago and it’s set to grow in a similar fashion.

London and the UK will benefit from their historical positions in Financial services but think about it, could the creativity, technology and design skills of Old Street, can be used to transform the business models of Threadneedle Street and Canary Wharf?

© IC Dowson. Click the image to see larger version.

Working with the developing world

FinTech is a worldwide market and some of the most innovative mobile money applications are to be found in Africa and the developing world.

Services like M-PESA mobile money banking have revolutionised money in Kenya significantly increasing financial inclusion levels, in these technologies the developing world is far ahead of the developed economies leapfrogging a whole generation of technology.

Incidentally SafariCom the mobile operator of MPESA is backed by Vodaphone and was originally funded by Dfid matched funding

The Valley could be under threat from competition

International Fintech comparisons are that the USA leads with investment of $6.6bn, half of the number of transactions being in California and the rest mainly in New York’s thriving Fintech scene. Europe, excluding the UK and the rest of the world follows with $0.9bn.

For the moment the Californians (Silicon Valley) lead in investment volume but they are receiving serious competition from New York, London and other worldwide financial services centres, as Fintech demands a high degree of domain knowledge only found in existing financial centres .

Startups are never easy to do but Fintech companies have to overcome the usual hurdles in addition they have to negotiate Financial Services law and get permissions from the Financial Services Authority (FSA) and follow very strict legal regulations when selling products and managing client monies.

This makes Fintech startup individuals some of the most resourceful, resilient and persistent individuals on the startup scene, if that’s possible, Jeff Lynn of Seedrs and Giles Andrews of Zopa have blazed a trail creating the legal advice support infrastructure and FSA permission pathways for other Fintech entrepreneurs to follow.

Andy Haldane Bank of England Executive Director of Financial Stability said last year in a speech:

In the UK companies such as Zopa, Funding Circle and Crowdcube are developing this model (peer to peer lending). At present, these companies are tiny. But so, a decade and a half ago, was Google”

The regulatory regime is key

In order for the Fintech sector to flourish, the new regulatory regime following the splitting up of the FSA must be capable of creating regulatory space where Fintech innovation can take place at the same time maintaining the highest standards of consumer protection.

There are signs the creativity of Old Street is beginning to create a buzz with some of the brightest of the City of London’s professionals. In January alone London New Finance, the capitals largest FinTech group, grew by 15% and is now approaching 1,000 members.

Investment in infrastructure

Some very significant investments in Fintech innovation infrastructure are being made.

The Level39 facility is such a key investment, matching anything seen in Silicon Valley or New York it is at the heart of Europe’s financial services industry but only a heartbeat away from creative industry entrepreneurs around Old Street. Its geographical position creates the opportunity for a fusion of two creative hubs and cultures to generate a powerful new innovation dynamic.

The Fintech wheel has started to roll throughout the world’s Financial Services industry it will be transformational not only by using the best the technology but by the creativity of its entrepreneurs. The world’s Financial Services customers await to be thrilled by similar user experiences as they get from Apple, YouTube, and Google, coming to your local bank account shortly.

London New Finance’s next meetup will focus on Challenger Banks and will take place on February 18th. Click here for more details.

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