Shaul David
FinTech Sector Specialist, UKTI
With the UK recognised as a global hub for FinTech development and innovation, interest levels in FinTech from incumbents here and abroad are soaring.
The UK FinTech landscape has greatly evolved even in last 12 months.
With the UK recognised as a global hub for FinTech development and innovation, interest levels in FinTech from incumbents here and abroad are soaring.
Start-up funding volumes continue to grow. According to London-based deep data provider Beauhurst, 2010 saw deals for UK FinTech companies involving 14 funding organisations. In comparison, by 2014 there were 92, around 40% of which were based in the US. This demonstrates that savvy investors are identifying viable exit routes for UK-based FinTech companies.
UK investment in skills and talent is impressive and is a significant part of its allure as a FinTech hub.
For example, The Open University and Innovate Finance launched FinTech 101, an e-learning qualification course on FinTech. Meanwhile, the Innovate Finance Manifesto 2020 aims to increase the number of people employed in FinTech by 100,000 over the next five years – almost double the current workforce.
Policy developments
A number of policy developments are also noteworthy. An independent Payment Systems Regulator for the £75 trillion payment systems industry became fully operational in April 2015, the first of its kind in the world.
The FCAs Innovation Hub, seeking to cut industry red tape, in June published a call for input to gather views on regulatory barriers to innovation in mobile and digital.
These two regulatory bodies are a shining light to global peers in terms of their role in promoting innovation in financial services.
Peer-to-peer lending
However, what symbolises most the UK’s current leadership in FinTech policy is the peer-to-peer lending space. Next year the Government will introduce the Innovative Finance ISA for loans arranged via peer-to-peer (P2P) platforms. This proves that alternative finance is far more than a niche offering for tech-savvy investors.
The implications of this policy are threefold. Firstly, it creates a new asset class for retail investors between stocks and cash and removes a market distortion in terms of tax treatment. It is potentially a huge step in bringing FinTech to a mainstream public audience.
Second, recent influx of capital by institutional investors into most P2P platforms has raised the risk for retail investors, who have less buying power, and are therefore unable to compete with the professional investors for the best loans. By pooling investors, ISA funds can effectively compete for business on the platforms.
Finally, ISA capital flows will attract more providers to the P2P market, increasing competition which in turn fosters innovation and will allow the sector to better serve consumers and businesses in need of funding.
International expansion
At UK Trade and Investment (UKTI), the UK government’s international business development arm, we actively support and promote cross border business. Indeed we have helped a number of overseas P2P platforms interested in the UK market, as well as our home-grown stars, expanding their businesses globally.
We are also banging the drum for the UK FinTech scene and this week we are hosting 10 exciting Australian FinTech companies in London, as they look for opportunities to expand in the UK. In October, a group of UK FinTech companies will fly to the US to explore business opportunities, and we will be promoting the best of UK FinTech on trade missions to the US, Japan and Vietnam.
The message is clear. The UK FinTech scene is buzzing and looks to have a bright future ahead.