Record billions investment in London’s fintech enterprises – but what about the rest of the UK?

Economy experts predict the country’s huge debts from the pandemic might be aided by fintech business profits in the recovery years ahead.

It’s a fact – London is now the second most popular city for global investment in fintech, second only to San Francisco and ahead of New York. A recent report highlights the fact that the UK’s fintech industry has secured a glowing reputation among world leaders and, despite the pandemic, it continues to thrive.

It’s US investors who have shown the greatest confidence in the English nation’s capital of late. They’re responsible for ploughing in up to 60 per cent of the current total London fintech funding which today amounts to nearly £3 billion. This good news break is reported on the DBC Media UK financial news website.

It was in the spring of 2020 and during the early coronavirus lockdown in the UK that recruitment firm Roger Walters and market analysis experts Vacancy Soft published some remarkable findings in a report entitled Fintech: Challenger to competitor. Part of the report is featured on the ComputerWeekly web platform.

According to the Walters report, in the first quarter of 2020, London fintech companies generated almost as much investment ($114m) as they did for the whole of 2017 ($148m). To date, London’s fintech firms have secured $3.6 billion (just over £2.733 billion) in venture capital. As further reported at DBC Media, London secured 169 deals relating to fintech enterprises while Paris claimed the second spot in Europe with 40.

London remains the number one attraction in Europe for fintech investors globally. Also earlier this year, joint data published by Dealroom and London & Partners had shown that London-based fintech companies secured 57 per cent of European venture capital investment from abroad, especially the States.

Looking at total VC investment into London, 44 per cent of all tech-related funding has gone to the fintech industry. The city is home to well over 2000 fintech firms, which means the capital has secured almost double the amount of US VC investment over the same period in 2019. This is a major boost to the sector and the UK economy, particularly outstanding as it’s been achieved under the dark shadow of coronavirus-related uncertainty, the DBC Media article continues.The Walters report highlights the fact that $2.2 billion of the total VC London investment was secured by just 50 firms. Among the largest was a $500 million Series D round for Revolut, funding coming from US firms Ribbit Capital and Technology Crossover Ventures, among others.

Further enhancing the reputation of London as an important fintech centre is the recent news that two overseas businesses, Plaid in the US and Clearbanc based in Canada, have selected the capital as the location for their new European offices as part of their expansion plans.Plaid has opened a new office in Shoreditch, giving it access to everything it needs - investors, potential clients, world-class talent and fintech savvy customers. In its planned London launch, Clearbanc has already committed to a $500 million investment in e-commerce firms.But what of the rest of the UK? The country’s fintech market currently remains firmly fixed in the city, despite the Walters report noting that tech roles in banking had increased 50 per cent since 2017 in regional cities like Manchester, Birmingham and Leeds.

As an example, in 2018, 45 of the UK’s 50 fintech deals worth over £1m involved firms located in London. So while the UK’s total deals nearly doubled to 96 in 2019, bringing in $48bn (almost £46.2bn) investment, only eight of these related to regional businesses. “In the past few years, we have seen regions outside the UK establish their own tech hubs and as a result, are holding onto talent. With the skills now existing in abundance in the regions, attention needs to turn towards getting fintechs to move or start up here,” comments Ahsan Iqbal, Director of Technology at Robert Walters.He adds: “Perhaps the most drastic change was the UK Government’s swift action to ‘shake up’ traditional lending and allow fintech companies to be an official loan provider for the Government’s Covid-19 bailout scheme, introducing fintechs to the masses. As fintechs creep into traditional banking territory, and financial services continue to embed technology into their processes, the sectors stand to become indistinguishable in the next year.”

The report also concluded that fintechs focused on lending are best placed to ride out the coronavirus crisis, because of their ability and capacity to work in ways that traditional banks could not.As normal restrictions on lending are waived to enable companies to ride out the crisis, AI will play a significant role in enabling the financial services sector to provide simultaneous support to thousands of businesses. This at a rate far greater than the capacity of their current underwriting team. As a result, AI-driven fintech lenders will be the biggest ‘winners’.Another consequence of the pandemic could be yet another significant increase in the UK’s use of online banking, which already has some of the highest customer user rates on the planet. These reached an all-time high of 73 per cent last year, according to the Fintech: Challenger to competitor document.

The report concludes: ‘Lockdown and social distancing measures mean that banks have had no choice but to scale back their retail operations and instead push customers towards digital platforms.’Overall, the report has shown that even amid a global pandemic and the widespread uncertainty it’s created, London’s fintech industry is a world-leader and can continue to attract investment and support. That’s not just a boost for the future of the fintech sector in the UK but the country’s economy. With soaring debts caused by Covid-19 to keep the UK afloat, it’s certainly sorely needed for general economic recovery in the years ahead.

You can read the whole DBC Media article at: