Overview of the UK Fintech success story
The UK is not only the financial capital of the world, it is also the leading Fintech capital, with increasing Fintech activity taking place across the financial services sector. Fintech activity is spread across the UK with notable hubs in Edinburgh, Leeds and London. The sector has now grown from its disruptive roots into an industry in its own right.
"The UK is a global leader in FinTech, with a world-class and well-rounded ecosystem. The combination of financial and technical talent is unparalleled, and capital is strong, with nearly £3.6b invested in FinTech in 2019. In policy and infrastructure, the UK has set the global benchmark for policy-led innovation, with key initiatives including the FCA’s regulatory sandbox, open banking and the AI Sector Deal frequently cited as internationally distinctive. And from a demand standpoint, consumers, SMEs, corporates and government are key users of FinTech; more than two-thirds of digitally active consumers now benefit from FinTech services."
- EY, 23 June 2020
As well as the obvious benefits to the UK economy, Fintech has transformed many traditional services supplied by the financial services sector; over 42% of digitally active adults now use the services of at least one Fintech firm, and more than 20 million people in the UK make use of banking apps as a more convenient way of managing their finances.
Over the last two years, the performance of the UK digital tech sector has been world-leading, with British firms attracting more capital than any other European country. Strength in technology and innovation, built on the UK’s excellence in R&D and creative thinking, is demonstrated by the breadth of tech activity right across the country, and the powerful networks being forged by the next generation of entrepreneurs.
The tech sector has experienced rapid growth over recent years, both across the UK and beyond. At each stage of growth, ecosystems experience shared challenges and find shared strengths. But each ecosystem has qualities unique to its location and culture.
Global connections drive innovation
Digital tech companies in London are the most connected in Europe, second only to Silicon Valley for international connections. 25% of entrepreneurs across the world report having a significant relationship with two or more entrepreneurs in London, compared to 33% for Silicon Valley. These connections extend the UK’s market reach and drive innovation in a process that is inherently collaborative.
The value of domestic networks must not be underestimated. Physical proximity often aids collaboration, as evidenced by the number of tech clusters around the UK. Connectedness – whether local or global – drives innovation, and also extends the market reach of all players in an ecosystem. Since the success of firms in the knowledge-based economy is increasingly dependent on their ability to innovate, the importance of these global networks to the performance of the UK tech sector cannot be overstated.
Partnerships, Culture and Innovation: The key to future success
This is especially true for the banks
While just a few years ago it was easier to dismiss new market entrants, firms including Exo, GoCardless, Monzo, Nutmeg, Revolut and TransferWise are now competing with traditional banks’ business lines - from international payments, transfers and FX, through to savings, investments and retail accounts.
Meanwhile incumbents have to deal with ever increasing operating costs through legacy technology, resources and real estate. Their innovation spend is just layering more and more cost into their operational spend without decommissioning the spaghetti that keeps the show on the road. Billions spent just to keep the lights on.
This was an acceptable outcome when the game was purely about size of customer base and everyone in financial services was treading water at the same pace. But the world has changed and banks are now busy trying to readjust to the new realities of a new axis based around the level of intelligent digital services.
For that to happen, we have to move away from the talk of digital transformation or innovation, and get down to the job of actually delivering meaningful change.
Banks should be wary of the FinTechs, challenger banks and the tech titans who won’t just copy the traditional banking model, they’ll be doing something brand new that they would not expect which will cause tension in the market.
But real fear should be saved for the real business-killers; apathy and a lack of respect for the challenge ahead. That’s the real opponent. That’s where the danger lies and that’s what banks have been getting wrong for too long and what let Goliath lose to David.
The important questions are not which technology wave to catch, startup to partner with, or emergent technology to back. They are, with new possibilities being opened up, what is the purpose of banking? What can the bank meaningfully do? What can you achieve with credibility, reliability and capability that customers would want?
Sources
EY, How FinTechs are moving mountains and moving mainstream, June 23, 2020, URL: https://www.ey.com/en_gl/financial-services-emeia/how-fintechs-are-moving-mountains-and-moving-mainstream
UK Government, UK FinTech State of the Nation. April 2019. URL: https://www.gov.uk/government/publications/uk-fintech-state-of-the-nation
UK Government, UK FinTech: On the cutting edge, 24 February, 2016, URL: https://www.gov.uk/government/publications/uk-fintech-on-the-cutting-edge
