London has become the global hub of the fintech industry, according to new research by Robert Walters and Vacancysoft.
Investment in Fintech in the capital in the first quarter of 2020 was $114 million, almost matching the level of investment over the whole year in 2017. Whilst there has been significant growth in the traditional banking and financial services sector outside of the capital, with tech vacancies increasing by +50 per cent since 2017, the fintech sector remains largely London-centred, where the growth in tech vacancies is mainly in the capital.
The report, entitled Fintech: Challenger to Competitor, reveals that UK fintech investment has grown “explosively” by five hundred per cent over the past three years, compared to one hundred and seventy per cent growth in the US and one hundred and thirty-three per cent growth in the rest of Europe. Eighty per cent of venture capital fintech investment into Europe is made in the UK, and the research cites a report from Bovill that revealed that more than 1,400 EU-based firms have applied for permission to operate in the UK post-Brexit, with over 1,000 of those planning to establish their first UK office.
The report also highlights how the current Covid-19 pandemic has fuelled the growth of the sector, pushing up the adoption rate of online banking and other digital platforms, as well as technologies such as contactless payments. The government also relaxed its lending rules for the Coronavirus Business Interruption Loan Scheme, allowing fintech firms to become accredited lenders.
“Perhaps the most drastic change for fintechs was governments swift action to ‘shake-up’ traditional lending and allow fintech companies to be an official loan provider for the government bailout scheme – introducing fintechs to the masses,” said the report.
“Fintechs were not initially seen as direct ‘competition’ to traditional banks – with their products and services differing vastly,” said Dan Simmonite, business director at Robert Walters.
“However, over the past 12-18 months we’ve seen fintechs apply for banking licenses so they can expand their offering to include overdrafts, guarantee deposits, and offer the ability to set-up direct debits.
“Whilst fintechs creep into traditional banking territory, and financial services continue to embed technology into their processes, the sectors stand to become indistinguishable in the next year.”
Despite the pandemic having carved out opportunities for the fintech sector, the report stresses the importance of fintech firms remaining wary of their finances in these unprecedented times: “The current climate is like nothing we’ve seen before so fintechs should be mindful of their balance books. [Investors] will consider fintechs that are rapidly running out of capital as leaving themselves too exposed to external factors. Whilst confidence for investment has been high up until this point, we can expect [venture capitalists] to be cautious throughout the rest of 2020.”
As London sees it status as a global fintech hub consolidated, the same can’t be said for the rest of Britain: regional vacancies saw a downturn in 2019 compared with the previous year, with investment being concentrated on the capital.
Of the fifty fintech deals of $1 million or more in 2018, forty-five were in London. In 2019, the number of investments had nearly doubled to ninety-six, yet only eight were made with regional businesses.
“If the government are serious about levelling up the country to catch up with London, then serious thought needs to be given to how and why London-based businesses remain so much more attractive to [venture capital].
“Work is already being done in Birmingham with HS2, as well as within Manchester, Leeds and Liverpool to grow the Northern Powerhouse.
“In the last few years, we have seen regions outside the UK establish their own tech hubs and as a result, are holding onto talent. We will see this trend continuing into 2020.”
The Covid-19 pandemic has left many businesses paralysed for the second quarter of 2020, and placed enormous pressure on banks and financial services firms as borrowing, payments holidays and insurance claims are being requested en masse. The report predicts that the fintechs best placed to “ride out the crisis” will be those involved in lending. This opens up specific opportunities for AI-driven lenders.
“As normal restrictions on lending are being waived during Covid-19 to enable companies to ride out the crisis, artificial intelligence will play a key part in enabling the financial services sector to provide simultaneous support to thousands of businesses – at a rate far greater than the capacity of their current underwriting teams,” said Ben Litvinoff, business director at Robert Walters.
“As a result, AI-driven fintech lenders will be the biggest ‘winners’.”
3rd June 2020.
