Fintech is still one of the most popular areas of investments currently and the UK remains at the forefront. According to Accenture, the UK and Ireland account for 40% of all Fintech investment in Europe. The UK fintech market is among the most attractive markets in the world based on market opportunity, regulatory environment and availability of capital. However, there is a cloud around the uk fintech market presently due to the uncertainties of the Brexit Article 50. Recently, we published an article on the latest Insights into the UK fintech investment market, this focus on the growth drivers, trends and development in the Uk fintech markets will help you understand the industry more.
Growth drivers of UK fintech market
Digital connectivity has contributed to the expansion of UK fintech market. Internet penetration and smartphones have revolutionised businesses and consumers connectivity, enabling them to connect in ways that were not previously imagined. Globally, the UK has one of the highest penetrations of mobile and internet.
Moreover, the fintech policy environment in the UK has created a safe ground and demand for new and innovative solutions. The Financial Conduct Authority (FCA), the UK regulator, has been very dynamic in their approach by engaging closely with innovators. Accessibility and supportiveness of the FCA, tax incentive, and many government programmes all, promote innovation and competition in financial technology (e.g., Mandatory Referrals and Open API)
Talent and capital are also growth drivers of UK fintech market. The UK ranks 2nd for its technical, entrepreneurial and financial services talent, and has unparalleled access to financial know-how, employing about 1.2m people in financial services, about 60,000 people in fintech. The availability of funds in the UK is good for fintech start-ups. According to a study by Let’s Talk Payment over $5.5 billion of investments were made in the financial technology sector from July 2015 to January 2016 .
Trends in UK Fintech Market
As the size of fintech market continues to increase in the UK, there is a need to understand the market trends in order to know what the future holds for fintech. According to a study carried out by Startupbootcamp and PwC, there are four main trends in UK fintech market.
- Payments, formerly the main focus of fintech innovation, have reached a certain maturity level and others are gaining ground.
- In 2015, asset and wealth management was the biggest growth area with a high representation in Finovate Europe 2016 and Startupbootcamp FinTech London.
- Blockchain got a lot of attention in 2015, but it has not succeeded in driving remarkable changes in the industry.
- Corporates struggle to partner with fintech start-ups.
Developments in UK Fintech Market
There are several developments that are evident in UK fintech market. First, fintech is changing the way customers pay for financial services. There is a move away from free float revenue models or paid subscriptions to alternative models that are based on monitoring and advertising or reselling of data to 3rd-party firms. This is due to data richness in financial services and development of a liquid and sophisticated market for digital leads.
Identity and fraud protection are another development in UK fintech market. A connected world is complicated and makes protection of personal financial details challenging. As start-ups come up with untested and new business models, security is often viewed as a secondary focus.
Infrastructure replacement is also a development in UK fintech market. Emergent fintech players are unsatisfied with current infrastructures and are side-stepping it. Infrastructures that have been developed to replace the old ones include cryptographic currencies like Bitcoin and peer-to-peer networks.
One obvoius trend that could not be ignored is the recent threats of brexit to the UK workforce, where over 300 fintech companies including the financial giant Paypal are all affected by the changes from Brexit. Most companies are considering relocating their offices away from London to other financial centers like Berlin, Dublin, Paris and Amsterdam which will reduce the number of jobs provided by fintech in the UK. The reason beign that most of the staff working in London are from the EU and the immigration changes might affect them.
Meanwhile, after Brexit, European Union is already limiting the growth of fintech firms in the UK. According to Bruce Davis, managing director of Abundance Investment, since Britain voted to leave the EU, financial technology firms are finding it harder to make their voice heard in Brussels and government. Abundance Investment has a “licence” to offer services across the European Union, obtained by regulators such as FCA in the UK liaising with its peers in the EU.
Currently, the EU is revising rules for how financial technology firms set out information for possible investors. According to Davis, the ability of UK to influence those rules has been hindered by resignation of Jonathan Hill after Brexit vote. Jonathan was a former financial services commissioner. However, there is still a strong believe that this will not affect the fintech business in London so much.