Why is the UK so successful in fintech?

The sector is home to many of the world’s largest fintech companies and is comprised of more than 1,600 firms – a number projected to double by 2030. It is well reported that the UK is a top financial technology hub, but why? 

Despite the potential detractions of Brexit and being the sixth largest economy, the UK remains a top destination for financial technology investment, second only to the US, and some way clear of India in third. In Europe, $9.1bn (£7.3bn) of investment in 2022 is larger than Germany, France, Sweden, and Italy combined.

In terms of fintech investment per capita and as a percentage of GDP, the UK is second only to Singapore. 

The reality is that multiple forces and factors have created a perfect storm for fintech growth in the UK. 

A global financial centre

Setting aside the fintech scene, the UK has a strong financial services sector, which is central to the economy and makes the UK the highest net exporter of financial services globally.

Many financial hubs have emerged, not least in Edinburgh and Manchester, but London continues to be a global financial centre. The favourable timezone and English being the native language makes it easy to do business across all major markets, while London has the world’s highest concentrations of financial firms.

Difficult economic conditions will only serve to propel the fintech sector further forward by creating an environment for entrepreneurship and innovation.

This concentration of activity represents an exceptional platform for fintech, offering ease of access to a wider financial ecosystem. 

Access to investment and capital

Fintech accounts for about 50 per cent of venture capital in the UK. As macro-economic conditions usher in a slowdown in the number of deals and level of capital investment more broadly, investment in fintech grew 24 per cent in the first half of 2022, compared to the same period in 2021.

This year may see access to capital become more challenging, but many believe difficult economic conditions will only serve to propel the fintech sector further forward by creating an environment for entrepreneurship and innovation, as consumers look to different ways to manage their finances in a cost of living crisis. 

Regulation and law

It is no coincidence that Singapore and the UK, where fintech investment is highest as a percentage of GDP, have globally respected regulatory frameworks, good infrastructure, and political, economic, legal, and social stability.

While there is no specific regulatory framework for fintech, the Financial Conduct Authority was quick to recognise the benefit innovation can have for consumers and markets and developed a more nurturing environment through its innovation hub and sandboxes.

The UK boasts one of the highest fintech adoption rates in the world.

The sandbox offers approved fintech firms' access to regulatory expertise and the ability to test products with real consumers. The sandbox approach has since been copied globally with the FCA becoming a key influence in setting the standards of international regulation.

Talent and community

The mature financial sector and thriving fintech landscape, supported by high tertiary education levels, create access to a strong talent pool. The government, through the global talent visa, has encouraged global fintech leaders and talent to come to the UK and help grow the sector that contributes $13.4bn and more than 76,000 jobs to the economy.

In 2019, the Department for International Trade confirmed that 42 per cent of fintech workers in the UK are from overseas, demonstrating that the sector attracts the best and brightest to the UK.

The UK also ranks highly for entrepreneurship in the Global Entrepreneurship Monitor, culturally more aligned to the US than Europe, with 402,000 new businesses registered in the first half of 2022, an increase of 18 per cent on 2021.   

Adoption

Another factor underpinning the fintech industry is the openness of consumers to adopt digital solutions. The UK boasts one of the highest fintech adoption rates in the world. Revolut has reached 20mn customers, up from 2mn in 2018, while Starling Bank is approaching 3mn users.

From a B2B perspective, 82 per cent of incumbents expect to increase fintech partnerships in the next three to five years, according to the Department for International Trade.

Established firms are increasingly recognising that fintech is developing capabilities required to thrive in the modern dynamic and meet customer expectation. Fintech has become financial services and the model is just how we either do, or aspire to do, business.

The infrastructure, talent, capital, and regulatory environment makes the UK a strong place for fintech.

Thus, it has created an environment for fintech firms to explore B2B relationships to augment the capabilities of large, established organisations, while simultaneously driving investment or acquisition.

The infrastructure, talent, capital, and regulatory environment makes the UK a strong place for fintech.

The Kalifa Review confirmed that fintech is no longer a niche within financial services. It is a permanent, technological revolution that is changing the way we do finance.

The report sets out a plan and demonstrates an understanding of the growing importance and value of the UK fintech sector, while reaffirming commitment to its long-term development and maintaining the UK as the place to be.

Jonathan Warren is head of innovation at Altus Consulting