Fintech is exploding.
It is a global industry, striving to change the future of finance.
…And the future is now. At Kurtosys, we’ve set out to cover exactly what’s happening in the financial industry the world over, one country at a time. With so many places contributing to the advancement of our digital world, each deserves their own time in the spotlight.
To finish off our globe-trotting experience in fintech, our focus is the home to the world’s largest financial service sector: United Kingdom. With world-leading economic backing and an early grasp of innovative technologies, the UK remains a fintech hotbed for entrepreneurs, from within the island or abroad, Brexit or no Brexit.
We’ve arrived here, at the end of a long crusade through the world’s fintech centres – those just starting up to those already very much accomplished. It seems strange to finally write about home soil after traversing the countries of great interest around the globe, but given the UK’s fintech positioning, it seems apt to end on a note of both success and uncertainty in current times. The UK has historically been innovative since around 2000 BC with the ‘building’ of Stone Age, and indeed its vast history of invention: the Steam Engine, golf, Led Zeppelin, the chocolate bar, and the World Wide Web courtesy of Tim Berners-Lee. The capital of England, London, is home to more than 300 languages (the most in the world), and is nestled amongst a swathe of innovative cities that span England, Wales, Scotland and Northern Ireland. As is relatively stereotypical, us Brits consume 165 million cups of tea a day, and date our love for alcohol back to the Medieval times. Seems apt considering the constant conquering the UK faced from Celts, Vikings and Normans; they needed to chill out at some point. Following on from the rich Royal traditions the UK upholds, it seems that the commitment to financial and technological advancement is no different…
For UK fintech, the stats tend to agree that it’s a world-topper. Deloitte gives London the ranking of the world’s largest financial services sector as a first instance. It is indeed home to 350 different banks from around the world (employing around 40,000 employees) – a melting pot for the financial world, owing to London’s adoption of just as many languages. For this reason too, Deloitte also classes it as the number one Global Financial Centre (over and above New York City and Hong Kong, quite remarkable), with a highly respectable Global Innovation Index score of 3. There aren’t many places in the world better at connecting every global city in the world due to geographical location, especially with both NYC and the West Coast for tech talent.
There are a few reasons for why the UK remains top of the financial tree. The country ranks as the fifth largest economy in the world, for starters. The country’s exporting industry contributes to around £67 billion to the valance of trade too, as B-hive notes. Not bad for a small island. 43,000 companies dominate the financial services and insurance sector, besides the large banking culture in the city. The financial services industry actually contributes an average of 11% to the economy, and has provided around 2.2 million jobs in the UK, generating revenues of around £200 billion. Most of these companies are based in the capital; the world’s most concentrated place for global banks, asset managers and insurance companies.
In more technological matters, since 2010 tech companies have raised around £7.4 billion in financing and the UK and Ireland hold the highest percentage of growth in fintech investment between 2009 and 2014. By 2015, the country was home to 4 fintech unicorns: Transferwise, Oscar Health, Powa Technologies and Markit, with last year’s venture capital investment in the fintech sector equalling around £2.9 billion. In fact, the growth of interest here still remains; a quarter of global fintech unicorns are based in the country. The country attracts foreign talent (with Innovate Finance believing around 30% of fintech’s 31,000 workers are from overseas) as well as nurturing developers in some of the world’s most prestigious universities, including Oxford and Cambridge. London itself holds the highest number of software developers in any European City, at around 71,000. London Mayor Sadiq Khan also highly values his city’s fintech capabilities, stating that:
“Today’s record investment figures are further proof that London is the undisputed tech capital of Europe, and I am committed to ensuring we take over from Silicon Valley as the world’s leading tech hub.”
Similarly, by 2026, the Digital Finance Institute claims London may be home to around 45,000 companies, generating more than £12 billion. Around 50% of fintech startups in Europe are backed by the UK’s regulatory system, notably comprising of the Financial Conduct Authority (FCA), the European Banking Authority (EBA) and the Prudential Regulation Authority (PRA).
The city has certainly done pretty well to get to where it is today, with excellent government and regulatory backing (more on that later), and the ecosystem that has been generated because of it. There are two pre-tech task forces in existence: Tech Nation and British Business Bank, alongside one of the world renowned incubators/workspaces on the planet: Level39 in the skyscraper-haven of Canary Wharf. Britain’s finance ministry even has their own “fintech envoy” to the world, Eileen Burbridge.
But that’s of course not to say the UK has its challenges. In the past couple of years, Brexit – the referendum which decided to leave the EU – has placed pressure on businesses of all kinds, including the financial services industry. Consultants Oliver Wyman predicted that Brexit could affect around 35,000 jobs, £20 billion in revenue, and around £5 billion of annual taxes. Many financial institutions such as Deutsche Bank are looking for different European bases; big banks did state that they were hoping to mitigate risk by moving jobs, but do continue to build units in the city. The loss of key trade links with the EU, foreign talent, and investor confidence, and increases in regulation and costs have all been a cause for concern regarding the bill, but fintech firms that have been built from the ground up in the UK seem to remain resolute about staying in the city; Santander InnoVentures management partner Mariano Belinky believes that the possibility of fintech relocation is “not reality”.
Brexit or no Brexit, fintech is still one extremely hot topic in the extremely non-hot tropics of Great Britain, so let’s see a snapshot of its regional scenes one-by-one.
Besides the main financial hubs in The City and Canary Wharf, London comprises of multiple regional tech hubs, most notably including Level 39 and the ‘Silicon Roundabout’ around Old Street. The surrounding areas of London Bridge and the Southbank are also up-and-coming tech hubs however, the same being true for the N1 postcode, with the number of new businesses growing by 75% between 2015 and 2016, from 8,400 to 14,710. The capital is also home to London Tech Week 2018, after International Trade Secretary Liam Fox announced an investment drive in the tech sector, but tech firms have received over £1 billion in venture capital funding even as early as 2014. Hence, London is fintech’s global leader, benefitting from the capital’s largest financial services sector backed up with legal expertise
This refers to the South-Eastern areas surrounding Greater London, a great network of developing technological hubs, which are as follows: Newbury / Reading / Basingstoke / Burnley / Slough and Heathrow / Livingston / Stevenage and Welwyn Garden City / Guildford and Aldershot / High Wycombe and Aylesbury / Southend / Enniskillen / Telford / Cheltenham / Stafford / Huntingdon / Swindon
The fastest growing sector in Scotland is digital technology; subsequently, Edinburgh last year similarly became the fastest growing tech hub in the UK. Given its strong academic institutions, and growing number of incubator programs (including Codebase, the UK’s largest), it’s no surprise that developers are also increasing in number, the population of which grew by 8% in only the second half of 2017, accounting for 7 developers per 100 workers. The University of Edinburgh’s School of Informatics is a huge source of potential for Computer Science students making further waves in fintech, and it remains a low-cost city with a high standard of living – particularly appealing for students and those wanting to set up a business. Funding schemes are also on the rise here, including the Small Business Loan Fund and Archangel, hoping to emulate the success of large tech companies in the city such as IBM and Microsoft.
Manchester also excels in the financial services and digital technology industries, the two largest in the city. Therefore, Manchester is going through a huge scale of development to become ‘the UK’s second city’, already the largest tech hub in the country behind London. The working partnership of the public and private sectors is of great note here, as well as the role of its universities. With the largest student population in Europe (100,000), Manchester has a growing number of initiatives to offer graduates a chance to develop new technologies and ideas, with co-working spaces on the rise. It’s already the UK home for banks’ IT centres including Barclays and Lloyds, and also ranks highest for Internet of Things-based startups; the Cisco 2016 IoT Innovation Centre works to develop smart city projects. Besides that example, £3.5 billion has been invested already in this technology infrastructure, making it the second largest business hub for creative and digital industries.
With a fairly decorated history in tech matters – aerospace and microchip design particularly – and the Bristol Robotics Laboratory, Bristol is becoming a nascent hub for tech newcomers. Oracle has chosen Bristol to host one of its new Startup Cloud Accelerators, and whilst not occupying the largest employee market, Bristol has a tech turnover of £7.9 billion. Techspark, High Tech Bristol and Bath and Venturefest also act as events to further the sector, along with the efforts of top universities including University of Bristol, University of Bath, University of West England and Bath Spa University.
Oxford & Cambridge
Despite their main fame as housing world leading universities, their importance is also apparent to tech sectors. Oxford University Innovation raised £52.6 million in seed stage funding, launching 24 tech firms. Cambridge is, in fact, Europe’s largest tech cluster, home to 1,500 tech businesses, and is worth £2.4 billion. Around 353 tech startups are created every year here, and it currently employs 30,219 people according to Information Age.
Rule(s & Regulations) Britannia
There is a further bridging project occurring to strengthen the regional approach to fintech in the UK; with envoys for Scotland and the North being putting into place. That takes us onto the roles of regulatory bodies and the government in assisting this advanced development stage. Here’s a (longish) list of everything that has been done, and how the UK is looking to remain top of the pile.
- The Financial Conduct Authority (FCA) acts as the key regulator, ensuring financial services companies protect consumers and the financial system whilst creating a competitive financial market
- The FCA has launched several fintech related initiatives. In 2016, it became an industry leader by launching a regulatory sandbox, where fintechs can create and test products, services and business models without being regulated immediately
- The FCA set up Project Innovate to encourage innovation and promotes competition through innovations vs traditional and existing finserv models
- In March 2016, the FCA signed an agreement with the Australian Securities and Investments Commission, supporting fintechs and referring to each other to allow each to enter both countries’ markets
- The British Business Bank is a government-owned business development bank to support startups and small businesses. It has an investment programme to help access loans, equity investment and grants for equipment, expansion or access to working capital
- Other agencies include UK Trade & Investment, Tech City UK, the Department for Business, Innovation & Skills
- UKT&I also assists foreign fintechs. There is a British presence all over the world (incl. Vancouver) to introduce startups to the London ecosystem
- The government also has separate ‘Fintech Bridges’ with Hong Kong, South Korea, Singapore and China
- A ‘Fintech visa’ exists to help entrepreneurs enter the UK for funding and launching startups before obtaining a full work visa
- The UK introduced the New Payments Systems Regulator from 1 April 2015, the first of its kind worldwide
- There is an Asset Manager Authorisation Hub in the FCA to improve the complex regulatory journey of an asset manager
- A partnership exists with the Investment Association to support VeloCity (a fintech accelerator specifically for the asset management industry)
- The Bank of England launched the Fintech Accelerator in 2016
- Also in 2016, the Competition and Markets Authority ordered the nine largest banks to deliver Open Banking, new and innovative products and services for consumers and SMEs whereby third party providers allow secure access to their current accounts
- A new investment fund was set up by British Business Bank, which co-invests with private investors
- In May 2017, £395 million was committed to fintech firms and challenger banks through British Business Bank programmes
- British Business Bank seeding is launching three waves of investment, totalling up to £4 billion
- £20m of public money is to match £20m of funding from employers to launch an Institute for Coding
- There is also a £250,000 programme for cyber security technology in UK, and £860m has been invested in a National Cyber Security Programme to protect and promote the UK and its online businesses
- In the Autumn 2017 budget, the number of Tier 1 exceptional talent visas to be distributed doubled to 2,000 a year
- In 2020, Digital T-Levels are to be the first instance of a technical education system reform
- The Digital Economy Act will target adults lacking digital skills, who will not have to pay to access basic digital skills training, also from 2020
Going forward therefore, the Government’s Industrial Strategy, published in November 2017, identified five foundations of productivity:
- Ideas – making the UK the world’s most innovative economy
- People – good jobs and greater earning power for all
- Infrastructure – a major upgrade to the UK’s infrastructure
- Business environment – making the UK the best place to start and grow a business
- Places – prosperous communities across the UK.
And so, with this multitude of investment, support, and a more targeted focus on the future of fintech, the UK looks set to remain in amongst the top of the sector’s top performing nations.
So who are succeeding today, and are potential stars of future years? Let’s finish of the series by finding out, starting with the entries from KPMG’s Fintech 100 in 2016:
#20 – Circle – With its HQ in Boston, but based in the UK, Circle is a global company of payment tools and digital currency services. It is comprised of 4 products: Circle Invest allows for investing in cryptocurrencies; Circle Pay allows money transfer by text message; Circle Trade is an OTC crypto desk and Poloniex allows for trading on a crypto exchange. It was founded in 2013 by Jeremy Allaire, the Founder, Chairman and CEO.
From the ‘Emerging stars’:
Azimo – An international money transfer platform which integrates with Facebook Messenger by linking with its Azimo App to make transfers in simply a few clicks. It can send money to 170 countries from mobile devices. It’s located in London and founded in 2012 by Michael Kent (CEO), Marta Krupinska (GM), Ricky Knox (Non-Exec Director) and Marek Wawro.
BlackSwan – A Big Data, cognitive computing and technology software house producing regtech solutions (risk mitigation and value generation) for financial services, governments and other organisations.
Credit Kudos – An accurate predictor of credit worthiness whose platform looks to make decision-making possible for unbanked and underbanked populations. Their data analytics products develop a scoring system providing a fair representation. Founded in 2015 by Freddy Kelly (CEO) and Matt Schofield (CTO).
Hello Soda – A B2B Big Data and analytics company whose ‘Profile’ product (a cloud-based data scoring engine) transforms unstructured data into usable insight. Applying psycholinguistics and natural language processing, the scores can be used by companies in any industry for ID/Fraud matters, risk, personalisation, customer engagement and acquisition and financial inclusion. Founded in 2013 by CEO James Blake (not to be confused with the singer/producer). It is based in Manchester.
Iwoca – A credit facility for SMEs in the UK, Poland, Germany and Spain. It has lent over £200 million to thousands of businesses, using technology to eliminate the costs than traditional financing and with no upfront fees and lengthy forms. It was founded in 2011 by Christoph Rieche (CEO) and James Dear (CTO), based in London.
And the updated 2017 edition from KPMG too:
#8 – Atom Bank – A digital banking system and app platform for users to conduct usual banking services (whether personal or for business) 24/7 on mobile devices. It was founded in 2014 by Anthony Thomson (Chairman). Its operations are based in Durham.
#13 – Funding Circle – A world-leading lending platform for small businesses in the UK, the US and Continental Europe, matching businesses with investors. It was established in 2010 by Samir Desai (CEO), Sam Hodges (Chairman), James Meekings (MD) and Andrew Mullinger (Director) and is based in London.
#22 – Revolut – A global money management application which runs at 0% commission with great exchange rates. Since beginning in 2015, the app had 47.000 users within the first 3 months, with an average of $1.3 million transactions per day. It is based in London, and founded by Nikolay Storonsky (CEO) and Vlad Yatsenko.
From the ‘Emerging 50’:
AimBrain – An impressive platform for global financial institutions which provides voice, facial and behavioural biometrics to provide risk scores. The technology has a deep learning engine to build an accurate profile of a user as time goes on. It was founded in 2014 by Alsis Novik and Andrius Sutas. It is also based in the capital.
Bud – Taking APIs and data, Bud creates a banking experience which allows all financial products to become linked in one complete system. Users can combine accounts to a single source for their personalised insights. Founded in 2015 by Esward Maslaveckas (CEO) and George Dunning (CTO).
Neyber – Neyber is a lending platform allowing employers to provide financial management products for their employees, including salary-deducted loans and financial education. It was founded in 2014 by Martin Ijaha (CEO), Ezechi Britton (CTO) and Monica Kalia (Chief of Strategy and BDM).
Deloitte also delivers other noteworthy fintechs across multiple disciplines: Credit (ClearScore); Trading (eToro); Crowdfunding and Lending (Crowdcube and LendInvest, respectively); Payments (Go Cardless, Kantox, Transferwise, Worldpay); Banking (Monzo, Zopa); and Wealth Management (Nutmeg).
So that’s that. It’s all finished, our globetrotting journey in the world of fintech. Who will remain at the top? The giants of the US, the UK and China have certainly taken to the industry the quickest, but given the large-scale global partnerships being built, those countries just starting out will surely build and build. We’ve seen tapping into the largely underbanked populations of Mexico, Brazil, South Africa and India, the taking advantage of historical financial hubs such as Switzerland, BeneLux, Germany and France, the stoic ecosystem boosting efforts of the Israel, the Baltic States, the Nordics and Australia, the technological expertise of Japan and the post-Brexit destinations of Ireland and Portugal.
Even with the ending of this series, it’s an exciting time for the financial services all across the planet, so stay on board and see what surprises the fintech world can still give us.
If you have any thoughts about UK fintech, let us know in the comments below, or you can tweet us.