The UK Fintech Market Is Booming
The Fintech sector - a catch-all term for technologies that compete with traditional financial services such as banking and payment mechanisms - have been experiencing a huge investment wave.
Fintech companies take advantage of emerging technologies to make financial services more accessible, cheaper and efficient. Popular examples include wallet providers (PayPal, Google/Apple Pay), insurtech companies (Credit Karma) and even algorithmic investment advisors (Betterment, Ellevest).
Investment in the UK Fintech sector tripled in the last year to an estimated $11.6 billion, attracting the second largest amount of investment globally - second only to the United States, according to a report by Innovate Finance, a trade body for the industry.
Deals are also continuing at a frenetic pace in the UK, with over 713 deals completing in the last year, of which 18 were large enough to be valued at over $200 million. This encapsulates more than 10% of all deals worldwide and capital flowing into the UK is equivalent to the next six European countries combined, based on the data compiled in the report. Five of the ten largest deals in Europe were in the UK including J.P. Morgan's acquisition of Nutmeg for £731 million and Visa's acquisition of CurrencyCloud for £688 million.
Additionally, the money is spilling out into the country as a whole. The UK regions saw growth with $696 million invested outside of London and the South East in 2021, a 237% increase from the previous year, according to the report.
The increased flow of capital has accelerated particularly since 2019-20, driven by the rapid digitisation of services following the forced closure of traditional brick-and-mortar banking institutions during the course of the pandemic.
Why Fintech is Big in London – The UK Regulatory Framework
The UK's regulatory approach has been particularly engaged in efforts to keep London's competitive edge against the rest of the world. Historically, the British have been the 'first movers' in financial innovation – the UK were the first to issue bank notes, launch a stock exchange and even install an ATM. Fintech has been no exception. The Financial Conduct Authority's ("FCA") launch of the first 'regulatory sandbox' for financial services start-ups in 2015 helped pave the way for unicorns such as Monzo and Revolut to emerge. The success was so significant it has been replicated by nearly 50 other jurisdictions around the world.
Part of the FCA's mandate explicitly includes the promotion of effective competition in the interests of consumers. The steps it has been taking aren't just aimed to help bring new entrants into the market, but also help by putting pressure on banking institutions that were already present.
Traditional banks and currently established tech giants have been put under more scrutiny to reduce their legacy processes and infrastructure, and rapidly digitise all aspects of their services, or else risk losing their customers. All five major UK lenders have since signed up to increase the use of start-ups in the finance supply chain.
Fintech firms still lag behind their traditional counterparts in some key areas, such as brand trust and the know-how to navigate complex regulatory compliance, with particular concerns about financial security especially in light of the ongoing international co-ordination over sanctions on Russia.
Nevertheless, the sheer variety of services, cost reductions and accessibility of Fintech services are clearly winning the hearts and minds of venture capital investors. It is likely that the UK market, which is reaping the rewards from early investment, is set to outperform its European rivals and take more market share in the coming years.
Get in touch
For more information on this update, or any other Fintech matters, please contact Sean Halliwell.
This article was prepared by Meer Gala-Shah.
Our Banking & Finance team advise lenders and borrowers on a range of deals, working with banks, building societies and a number of private operators on a range of finance matters across various sectors.