The UK is firmly recognized as one of the leading global fintech hubs.
2022 research by Deloitte shows that there are over 2,500 fintech companies across the UK, with London establishing itself as the second highest fintech location in the world. Coinciding with the UK’s strong grip on the fintech sector, G-P’s research in 2022 identified that 1 in 3 companies are focusing their expansion efforts on the UK market. The British Isles is clearly booming for business in the tech sector as a whole.
Dhaval Gore, Partner Communities Director at G-P, explained the UK’s ability to attract tech talent to its shores: “The UK is a business-friendly destination, particularly for those in the tech industry. This is reflected in the favorable regulatory frameworks, talent pools, investor-friendly policies — tax incentives like SEIS and EIS — and a sizable and sophisticated market of consumers and businesses that are tech literate with high adoption rates.
“Large amounts of funding, plus mentoring and business networks, have allowed startups to accelerate their growth, demonstrate their potential, and reach significant valuations at a very young age,” said Gore.
An evident benefactor of the positive conditions outlined by Gore is fintech. This sector has grown deep roots and bloomed significantly in the UK, with both direct-to-consumer (e.g. challenger banks) and B2B (e.g. open banking) products finding room to grow. For instance, of the UK’s 43 unicorns, 21 are fintech. Many are now well-known brands, like OakNorth Bank, Revolut, Starling Bank, Checkout.com, and Monzo.
The origin of fintech in the UK
Although research shows that Europe represents over 25 percent of all fintech unicorns globally, Gore made an interesting dissection of this statistic. He pointed out that the top four countries in the world for fintech companies and unicorns are the U.S., China, the UK, and India. Therefore, while Europe has a thriving and dynamic fintech sector, it is clearly backboned by the UK at present, which in turn is dominated specifically by London. England’s capital city is home to most of Europe’s fintech unicorns and takes the lion’s share of VC funding.
So, when did fintech’s roots first embed into the fertile ground of the UK and Europe? The origin of the industry’s current iteration, as clarified by Gore, is the global financial crisis of 2008. This downturn spawned a lack of trust in financial institutions and frustration in those working within these structures.
Gore explained the ensuing domino effect: Many people left their banking, investment trading, and insurance jobs to start their own companies to address the inefficiencies they experienced while working in the banking and broader financial services sector. Ultimately, they thought they could better serve customers – particularly in retail and business — by leveraging technologies underpinned by the emergence of cloud computing and the high rates of mobile phone use. This was coupled with a receptive customer base seeking user-friendly, innovative, and speedier ways of managing their money.
What are the regulations for fintech?
While this was the “Big Bang” moment for fintech, it evolved quickly in Europe due to supportive regulators recognizing its potential and impact early on and creating policies and frameworks to encourage its growth.
“A clear example of this,” said Gore, “is the UK’s Financial Conduct Authority (FCA). They are often cited by fintech founders as playing a crucial role in the sector’s success. The FCA quickly recognized that fintech was focused on improving the customer experience while remaining fully compliant.
The FCAs’ sandbox was also considered progressive in giving startups access to data to allow them to develop new products and services while also remaining FCA-compliant. Arguably, this partnership with the regulator and a customer-centric approach set the UK and Europe apart from the rest of the world.”
Many of these critical developments in fintech created in the UK and Europe have now been adopted and replicated worldwide. A clear example of this is in Open Banking. This is an industry and regulator-agreed approach to allow the sharing of customer-consenting account data (using APIs) between the traditional banks and fintech to improve the customer experience. This enables the development of innovative new products while ensuring full transparency, data privacy, and security. Open Banking is now evolving into Open Finance which extends the principles of Open Banking, but into other customer-facing industries outside of banking, such as insurance, utilities and elsewhere.
How Covid-19 impacted fintech
The Covid pandemic positively impacted the fintech sector. This is because it brought to the forefront how people and banks manage their money. There were essentially three outcomes for the fintech market due to the pandemic.
“Many fintech companies were invited to join emergency government initiatives to support their business communities by providing digital distribution channels to quickly channel funds and loans to companies in desperate need of help,” explained Gore.
In addition, Gore stated that many corporates recognized that their internal processes, systems, and infrastructure were severely tested during the pandemic. This has led many corporates to actively seek technologies – including fintech solutions – to avoid a repeat of the pandemic’s effects in the future.
Lastly, Gore noted that banks and large financial institutions in particular are much more inclined to partner with fintech to help them build their own digital solutions and ensure that their internal “plumbing” is fit for purpose. In doing so, they simultaneously respond to their customer’s demand for a better digital experience.
Will a global recession bring down fintech?
As the threat of a recession seems to loom menacingly over the globe, the two-year-long investment frenzy into fintech appears to be trailing off. Although 2021 was a record year for fintech investment, investors are now becoming more selective.
“VCs are investing more in later stage fintech. Plus, they want to see metrics that prove a clear path to profitability,” stated Gore. “That said, fintech is now prevalent globally, albeit at different stages of adoption. This clear foothold means that this will not change or go in reverse due to a recession. You could argue that a recession is a perfect environment to speed up fintech solutions and adoptions, similar to the aftershocks of Covid-19.”
Gore further explained that fintech will continue to emerge during an economic downturn as more gaps in services will inevitably be uncovered.
Looking into the future of fintech, Gore doesn’t foresee one where traditional banks will not exist (despite this often being proclaimed at the dawn of fintech in 2010). Instead, he predicts that banks will have to evolve and reconfigure to stay relevant and profitable.
“The partnership announcements over recent years between the banks and fintech suggest the banks will accelerate their digital transformations as they continue to not only deliver core products digitally, but they could also start delivering more personalized and modular products that speak to a much more diverse group of consumers and business owners.” So, according to Gore, essentially, what banks have that fintech wants is scale and coverage, which will remain the case for the foreseeable future.
“One of the big topics and areas that fintech and banks are trying to solve is how they can engage and deliver specific products for the underbanked and unbanked across the globe. This effort would raise people out of poverty and create an inclusive banking system. It’s in areas like this that a strong partnership between the banks and fintech is necessary to ensure they pool their expertise and resources for the betterment of society,” concluded Gore.
As the fintech market continues to cement its place as a stronghold of the European tech sector, companies will want to find fintech talent in emerging hubs. That’s where G-P comes in. Our #1 ranked SaaS-based Global Growth Platform™ and in-country expertise allow you to start building your global teams, anywhere, in minutes instead of months. To get started, download our eBook, “Global Hiring Guide: Top Emerging Fintech Hubs” to discover the top emerging fintech talent hubs in the world, the best strategies to hire in these talent hubs, and the value that G-P offers as your Trusted Global Guide throughout your international hiring journey.