A Bright Future for UK Fintech


Lizzy Chesters, Corporate

A Bright Future for UK Fintech

The term ‘Fintech’ was barely used five years ago but the actual concept behind the industry is not a new one.

Fintech is a very broad sector, but is normally defined as any company that uses software to provide financial services. In theory, this includes accounting software which has been around for decades and traditional Fintech firms tend to be large technology firms.

Emergent Fintech companies are smaller businesses that provide innovative ways to bring financial services to consumers.

In 2014, the UK took 42% of all European Fintech investment - a 136% increase from $264m in 2013 to $623m in 2014.

The sector is worth £20bn in annual revenues to the UK and is helping to bolster the country’s economy. The financial industry is already huge – tapping into this with a unique service or product is bound to reap dividends which are already evident.

So why has the sector, almost suddenly, taken off with such triumph? And why is the UK at the forefront of this success?

Why has the Fintech sector proved so successful?

1.       Relaxation of rules

In 2013, the UK’s financial regulators relaxed rules surrounding banking licenses. Since then, a plethora of enterprises have applied for these licences with an aim to take on the traditional banking model.

2.       New Fintech businesses are app-based

A majority of these new businesses are app-based challenger banks, for example Mondo and Atom. Being app-based, the cost of overheads is drastically reduced. Their main obstacle for success is gaining consumer’s trust which should gather momentum over time.

These new banks provide a more convenient, real-time service with better choice for consumers.  At the same time, new fintech companies are not tainted by the negative perception that the banking sector is so often associated with.

3.       Fintech is a very broad sector

Furthermore, the variety of fintech available means many different sectors can jump on the bandwagon, not just traditional finance companies, hence room for the sector to grow is huge. They range from peer-to-peer lending and remittance to fraud detection and cybersecurity.

Why is Fintech so thriving in the UK?

1.       Support from the Government

When it comes to support from the government, Fintech has it in mounds.

Innovate Finance is an independent, non-profit membership based industry trade body for technological innovators that aims to advance the UK’s position as a leader in financial technology in the UK and globally.

It was launched August 2014 and at the end of July, the organisation released their UK Fintech 2020 manifesto, which was welcomed by David Cameron, detailing impressive targets. For example, Innovate Finance outlined plans to obtain $8bn of technology investment in the next four years, as well as creating 100,000 jobs in the sector.

2.       Recognition of the need to innovate and modernise

It could be argued that the financial sector has been somewhat behind the curve when it comes to innovation over the last decade but businesses are beginning to appreciate its importance for future success.

Banks are recognising the need for modernisation as Barclays now run their own London accelerator programme called Techstars.

They offer ten start-ups a 13-week programme to help develop the business and provide mentoring as well as up to $100,000 funding. The budgets that the big banks have to spend on innovation are reported to be as high as £3bn annually.

3.       Entrepreneurial talent

We also have the right talent coming through.

A significant number of bankers who fell foul to the economic crash almost a decade ago, have dipped their toes into entrepreneurialism, the results being a higher number of fintech start-ups. They also have the support network from the government and incubator/accelerator programmes including Innovate Finance and Level 39

Relatively speaking it is quite easy for fintech companies to make a turnover early on in their existence. Eileen Burbage, Venture Capitalist and George Osborne’s special envoy for Fintech recently said,

“Fintech business models tend to be straightforward and cash generative from day one, whether they are commission-based or otherwise.”

Many make a turnover from the get-go.

4.       Geography

From a geographical perspective the UK is ideally situated so it can operate with both the US and Asia in the same business day. This is unique to our market and puts the UK at a great advantage.

The Fintech success stories

Peer-to-peer lending platforms and money transfer businesses seem to be operating particularly successfully. In 2015 funding rounds:

  • Funding Circle raised £96m
  • TransferWise raised £37.2m
  • World Remit raised £64m

Some Fintech firms, including TransferWise and Nutmeg, have been so successful that they are directly challenging the UKs banking sector.

Their future successes depend on whether the big banks adapt fast enough.  Already, with new fintech start-ups, the stability of the traditional model has been put in jeopardy. High Street banks will be forced to adapt in the changing financial landscape with cheaper, faster, more convenient and tailored services.

UK Fintech success: the evidence

  • Still, the Level 39 incubator in Canary Warf has a highly concentrated number of successful Fintech firms and could be the largest group of its kind in the world.
  • In spite of the US being further ahead, Europe has been identified as the highest growth area for fintech, bolstered by UK successes. 
  • In June, David Cameron commenced a trade mission to Indonesia, Singapore, Vietnam and Malaysia, with several British fintech enterprises joining him. This cemented the UK’s role as a global Fintech champion.
  • The Open University, in conjunction with Innovate Finance has just started to offer an online course in financial technology. This only reinforces that the sector has been identified as an important new business field.

The future of UK Fintech

Currently, only 2% of consumer spending happens online, so the growth potential is enormous and must be taken advantage of. We appear to have the funds available as the amount of money being invested in first round investments had increased by 48% so the future of fintech is a very prosperous one.

Despite the UK being one of the most digitally-ready countries and being home to the largest IT sector in the continent (6.7% of GDP), businesses here need to embrace digital technology at a greater pace. This is particularly the case if we want to reach those ambitious targets set by Innovate Finance only a few weeks ago.