Financial Technology or FinTech is a term used for defining technology that is disrupting the way traditional financial organisations have worked. Increasingly, FinTech companies are providing a higher end value product to the consumers that differentiates from the traditional way by focusing on more simple, transparent and secure features. In addition, FinTech has also been able to increase the accessibility of these services to a wider range of customers – both in developed and emerging markets. The impact of this transformation in the financial sector is far reaching, impacting our day to day lives. It wasn’t long ago that to make a purchase, we needed cash or cards only. But today, a customer has multiple options to make a payment with. For example, according to the Starbucks website, they accept payment through Starbucks mobile app, Gift card, Apple pay, PayPal, Visa, checkouts along with prepaid debit cards and cash. Thanks to the technology all these forms of payments can occur instantaneously, ensuring security at the same time.
FinTech has transformed the emerging markets too. With a rise of mobile phones, better internet connectivity, and growing population of competent smart phone users – the pace of growth in a FinTech firm has been much faster than the traditional banking industry. The impact is noticeable not only in the banking and payments segment but also in the insurance, micro-finance and remittances segments. However, their capabilities within the FinTech are not as sophisticated as the developed markets.This is primarily because most of these markets are heavily regulated and guarded. Furthermore, affordability is also a hindrance.
The story has been different in the developed markets.In 2017, FinTech attracted £6.25 billion in venture capital, in the UK alone. According to the UK trade investment government report published by Accenture, UK is the fastest growing region in the FinTech investment with many major investments within London. The below chart highlights the increasing investment made this year.
As per the 2018 cumulative data from dealroom.io, the UK continues its lead in terms of investments, followed by Germany and France, in terms of investments. According to another report by KPMG the UK’s FinTech industry attracted over £12.64bn investment in the first half of 2018, more than any other country. In fact, the UK government has already announced plans to create 100,000 new jobs in the sector by 2020. So, what makes UK, and most importantly London the growth and investment hub for FinTech?
London is the place where the first modern banks were established, due to the UK being the financial and political powerhouse of the world. With their financial capabilities, these financial institutions grew faster than the rest of the world – this allowed many people to access the UK’s financial sector. While other economies were catching up, financial domination of the UK, became more and more sophisticated, thus creating other financial instruments like Insurance and Bonds. London definitely had the early starter’s advantage by being the hub for all the financial changes. Furthermore, an EY study of FinTech in the UK highlights 4 other key points behind the growth of FinTech in the UK:
Regulatory environment – The strength of the UK policy environment is due to the supportiveness and accessibility of the Financial Conduct Authority (FCA), effective tax incentives and numerous government programmes designed to promote competition and innovation which indirectly support FinTech.
Availability of Demand – London ranks first in terms of the scale and competitiveness of its financial center, with the world’s highest concentration of global institutions across banking, asset management, insurance and trading sectors. This concentration of financial services activity represents an exceptional platform for FinTech solutions. Consumer adoption of FinTech is becoming increasingly mainstream in the UK with higher number of digitally active consumers identifying themselves as FinTech users.
Availability of Capital – The availability of capital in the UK is good for early-stage investment. In the first half of 2018, FinTech companies in UK attracted the highest investments, more than any other country. The UK appears to have robust access to capital at the early stage. In 2018, the UK accounted for over half the total FinTech investment into Europe (£20.54bn) and attracted more money than the US (£11bn). Nearly a quarter are UK-based, although these businesses are mostly funded by overseas investors.
Availability of Talent – The availability of talent in the UK (particularly London) is currently stronger than in most other regions. This applies broadly across the three key skill sets required to establish and grow a FinTech business successfully: technical talent, financial services expertise, and entrepreneurial and leadership know-how. In addition, London has also been attracting global talent because of higher than average salaries, good quality of life, easy access to basic amenities like healthcare, transportation etc).
With such a great ecosystem, the UK remains the epicenter for FinTech startups. We at Viola Group, have experienced the same.