The Rise of FinTech in the UK

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Rise of UK Fintech

UK Financial Services Leading the Way

The UK financial services sector accounts for nearly 9.4 percent of UK GDP and is one of the largest globally. Of surprise to many is that the sector is more active in the UK than in many other European Countries.

MBN Rise of UK FinTech

With around 1.1m people working in the Financial Services sector (more than 130,000 in financial services technology) in the UK drawn from some of the brightest, creative and most capable the sector has to offer globally, it should be no surprise that they, and the firms they work for are constantly seeking ways to innovate, overcome and adapt to the opportunities technology has to offer. Couple this with the high levels of consumer sentiment showing a greater willingness in the UK to utilise ecommerce solutions by spending much more on ecommerce than their equivalents in Germany, France and the USA, and you have an ideal environment in which to invest in developing FinTech solutions.

MBN Rise of UK FinTech

FinTech: A little more detail

FinTech, is used to describe digital technology applications which are used in, or adopted by, the financial services industry; it commonly encompasses back-end computer systems – used to manage finance related accounts but, more recently, it has been coined to describe a new breed of innovative and frequently disruptive consumer applications, which seek to revolutionise and transform the systems at the very core of traditional financial services and ultimately make the unimaginable: possible.

So, what’s in and what’s not when we look at FinTech? This fast-growing sector includes both traditional FinTech (with larger incumbent and legacy technology firms supporting the financial services sector), and emergent FinTech (with small, innovative firms, often start-ups using new technology to bring financial services directly to consumers, often disrupting existing business models).

A characteristic for many in this sector is that traditional FinTech businesses typically have no shortage of available capital to support the on-going development of their solutions. Of interest is that with many of the emergent FinTech businesses being start-up companies seeking to disrupt the competition, this could become one of the most interesting and financially rewarding investment opportunities for many years. However, the extent of the opportunity may depend on where you look.

So… why the UK?

According to Accenture, the UK and Ireland is now the fastest growing region for FinTech investment. Deal volumes here have been growing at 74 percent a year since 2008, compared with 27 percent globally and 13 percent in Silicon Valley. During the same period, the value of FinTech investment increased nearly eightfold, to US$265 million in 2013 – a rate of 51 percent a year, nearly twice the global average (26 percent), and more than twice that of Silicon Valley (23 percent).

Many of those I have discussed the subject matter with have asked why the UK leads the way but in essence, it can be attributed to:

  • London’s position as a world-leading centre for financial services and as a global trading hub
  • Availability of business capital and investment cash
  • High quality financial services infrastructure matched with a relatively supportive regulatory approach.

Add into the mix some additional characteristics and it becomes a compelling place to be if you’re interested in FinTech:

  • The UK Government has pledged to support FinTech companies
  • A large volume of traditional FinTech businesses are already here
  • The UK offers many specific market opportunities in FinTech, especially in relation to payments, platforms, software and data analytics.

FinTech… a little more detail to support the notion that its on the rise.

FinTech is, undoubtedly, one of the most exciting areas of the digital revolution. Not least because it involves long-standing and very established financial institutions: Institutions traditionally associated with being slow moving and maybe considered to have been slow to adapt and really gather pace in relation to digital technology. Predominantly, due to fears regarding security but, in addition, because when anything involving the movement of large sums of money is initiated – there are, frequently, numerous obstacles which may work to counter progress, such as; restrictive government legislation or intentional obstruction by large, powerful financial institutions and their refusal to cooperate without attaching hefty fee structures.

Over a period of time consumer fears regarding trust and security, have dissipated and through the long-standing success of industry forerunners like Paypal and to a lesser extent: BitCoin; customers now crave convenience and instantaneous action. We’re no longer willing to wait four working days for money to be transferred and we want to be able to complete transactions online, regardless of whether it is via mobile phone, tablet or any other handheld or desktop digital device. This is where the consumer-driven paradigm shift and associated, expanding horizons allows FinTech to really come out of the shadows. It is this change, which is simultaneously forcing traditional financial institutions to change tack and follow suit – driving FinTech growth.

The financial technology revolution has already begun and a new dawn in the way in which money is moved around the world has arrived. Looking to the future; it is now an imagined possibility that the advent of crypto-currencies or digital currency technology is likely to underpin the majority of all future real-world transactions. New digital platforms, which enable peer-to-peer lending, crowd syndication and crowd-funded equity schemes – are simply, just a matter of time. FinTech and the innovators in the financial technology industry are creating challengers to every existing product category in the finance market today and we can expect to see these digital applications multiply, in scale and in uptake, exponentially, over the next five years.

So… I’m in… what is the investment potential?

Accenture recently cited CB insights Data to report, in a document produced for the Innovation Lab and New York Partnership: ‘Global FinTech investment will more than double by 2018’.  Albeit this was a report focused on the US but the trend is likely to be similar in the UK.

Arguably, the development of FinTech – as an industry, can be similarly compared to the original .com boom where small start-up businesses, from incredibly humble beginnings, sky-rocketed to multimillion pound turnover companies; overnight. To demonstrate the true extent of the un-tapped investment potential; FinTech and the companies involved in emerging financial technology are now reportedly forecast and on track to hit similar growth trajectories as Facebook and Google. We’re also expected to see mobile payment applications from the big technology giants, such as: Amazon, Apple and Google, to hit the market within the eighteen to twenty-four months, which further solidifies the notion that outlandish inventions, once only conceivable in the ‘Back to the Future Movie Trilogy’ or Hanna-Barbera’s: the Jetson’s – are becoming actual currency and they’re happening in finance.

If we look at disrupters in other industries, which are driving market efficiencies and cutting out the middle-men, we gain a perspective understanding of the potential growth. Take Uber, for instance – a clever mobile ride / taxi service; this fledgling company established just four short years ago is already reportedly generating $1.5–2 billion in revenue with figures soon expected to hit $10 billion. (Business Insider, 2014)

According to the FinTech Investment Landscape Report, by CB Insights; Angel investors, Venture Capitalists and Private Equity investors have already invested around $10 billion, in FinTech start-ups and development projects, since 2008.

MBN Rise of UK FinTech Deals

All fair and good but this still shows the US seems to be getting the ‘Lion’s share’. However, consider one of Accenture’s other findings: Together, the UK and Ireland have seen the volume of Fintech deals triple since 2011. The region’s five-year compound growth rate for fintech financing was twice the global average and twice that of Silicon Valley. Growth in the number of deals was three times the global average and more than five times that of Silicon Valley!

Coupled with the typical British entrepreneurial spirit and the lack of barriers to entry, the UK could be a great location for your FinTech Investment. One of the most exciting prospects, when viewing FinTech as an investment opportunity, is the ability for small, independent technology companies to bring their products to market with limited infrastructure and reasonably low entry costs – as a direct result of the advancements in cloud-based computing, open source software and other emerging new technologies. Particularly, as the large financial institutions are unlikely to have neither the required skill-sets or be able to afford the potentially expensive and lengthy development and incubation periods; this presents a huge window of opportunity that savvy digital innovators are exploiting. An opportunity that I am seeing more frequently in the UK.

OK… I have nothing to invest but I want to get involved in FinTech

As is the case in relation to the uncapped FinTech investment potential; the opportunities to work in this emerging sector are vast and rewards equally lucrative. Interestingly, the rise of FinTech as a stand-alone industry presents a number of exciting propositions for a wide breath of professionals with varied specialisms, aside from the highly valuable digital technologists at the forefront who will be tasked with producing the technological currency and tangible assets.

It is true, this expanding industry is going to demand large numbers of practical coders, hardware engineers and UK and digital interface designers for whom the rise of FinTech creates no upper ceiling for career aspirations and financial rewards but, in addition, it will require great leaders, creative thinkers and business strategists whose business acumen and steady-hands will be instrumental in driving these new financial technology businesses forward. Paradoxically, the unprecedented growth will also highlight the need for financial planning experts, growth accelerators and financial mentors to lead aspiring technology companies and steer them towards long-term financial stability, future expansion and stock flotation.

Equally and somewhat ironically, there will need to be a meeting of minds and collaborative working relationships established between industry experts from legacy financial institutions and new-age FinTech revolutionaries – without their combined insight and expertise; FinTech is just an idea.

Growth in the FinTech industry is also likely to have a knock-on effect with other complementary industries and create new markets of opportunity within data and behavioural analytics, specialist marketing and cloud-based computing and mass storage.

Conclusion… it’s just the start!

Overall, the opportunities for investment, employment and asset ownership within the transient boundaries of FinTech are limitless and present boundless scope for the business community as a whole – not just for those working within the realms of financial services. It is, however, the exciting possibility of being involved in such revolutionary and transformational projects that makes FinTech such an appealing investment prospect and employment proposition alike.

SolarCoin and others are already using digital technology to monetise commodity markets, which would suggest there isn’t an industry in the world which won’t be affected by the rise of FinTech – escalating the concept of the technology from an industry-specific development to something more akin to a global business revolution and pushing the boundaries for opportunity to unequivocally high levels; the future is most definitely bright for the finance industry!

Part of the thrill associated with being involved in FinTech, is the element of it being such a new frontier; could we eventually see an end to credit cards, bank accounts as we know them and possibly even bank notes? One in three Britons now carries less than five pounds most of the time and it has been reported that some global markets already have more mobile wallets than bank accounts, which is a truly staggering statistic.

So… are you yet to be convinced? Is this an area you want to know more about or in which you wish to explore employment prospects? Get in touch here.