It’s been stated that FinTech innovation will be at the heart of London’s recovery. Innovate Finance data shows US$4.1 billion was invested across 408 deals in 2020, putting the UK second only to the US in total capital raised and showing the continued importance of the industry to the UK economy. Dima Kats, CEO of Clear Junction, explains why London remains the heart of European FinTech.
London is home to over 2,100 FinTech companies, more than any other city in the world. The job market for FinTech in London alone has seen a growth in demand of over 60% this year. However, the relationship works both ways. As FinTech has driven London’s growth, its emergence as a global finance leader has pushed the UK’s FinTech success story.
With the highest concentration of financial and professional services worldwide, London is the second-highest ranking FinTech ecosystem globally. It’s also attractive to investors: in 2020, 94% of the UK’s FinTech venture capital came to the city, fuelling further FinTech growth.
While London is currently at the heart of the UK’s FinTech market, the UK’s proposition for the FinTech space in the rest of the UK is expanding rapidly. Britain offers world-class talent, a forward-thinking approach to regulation, good capital access and is home to an innovative financial services sector. This developing environment has put the UK at the forefront of FinTech innovation and shows no signs of slowing down. However, the future evolution and success of London FinTech will depend on strategic partnerships.
State of FinTech in London
London is now home to more FinTech 100 firms than any city in the world. Due in part to the rapid adoption of digital services, especially in finance, London continues to hold the top spot for financial and professional services, especially when compared to competitors like New York, Singapore, Hong Kong and Frankfurt.
Indeed, a Beauhurst report stated that FinTech is the UK’s strongest start-up sector, with a total of 1,373 FinTech companies collectively raising £14.9 billion in equity funding in 2020, 71% of which are based in London. Additionally, 41% of financial services managers plan to expand their UK operations and 88% of UK FinTechs have acquired funding in the last ten years, compared to just 55% across all other industries.
These statistics tell a story of a city that is using its historically strong position to overshadow other FinTech players and forge its own path. However, to continue this success, finance and FinTech industries need to come together to drive innovation and development – and partnerships are key to this.
Pandemic acceleration
FinTech adoption was already on the rise in 2019, but last year there was a major shift toward contactless payment and other digital payment methods. Data from McKinsey highlighted this, showing a 4-5% reduction in global cash payments since the start of the pandemic.
This rapid revolution of the FinTech market in London also saw challenger banks such as Revolut, credit innovators like Klarna and other FinTech firms become serious players on the global finance stage. Digital native FinTechs supply a more tailored and streamlined digital customer experience than legacy institutions. This shift in the market is due in part to FinTech entrepreneurs rising to the challenges posed by COVID-19. FinTechs were able to deliver digital, secure and seamless user experiences for consumers while expanding access, safety, convenience and efficiency all at a lower cost.
Instead of competing with the challenger banks and brands, traditional financial institutions are increasingly looking to accelerate their growth strategy by outsourcing aspects of their business to FinTech experts and developing strategic partnerships. We expect these types of FinTech and financial institution partnerships to increase and grow in significance over the next few years.
Future of FinTech – Partnerships
FinTech is often viewed as the biggest disruptor of our times for financial institutions. Recent research of senior executives at financial institutions ranked it as the number one challenge for them (57%), ahead of growing global regulatory complexity (51%) and new business models (46%). Whether it’s providing new ways to enhance the customer experience, responding to regulatory change (such as open banking), underpinning new payments or developing digital delivery models – the FinTech solutions available, or in progress, are reinventing financial services.
Instead of viewing them as competition and a challenge to overcome, financial institutions can unlock a myriad of benefits by strategically partnering with FinTechs. Partnership between a FinTech and financial institution opens up transformative features that may have been previously unavailable, such as money management tools or mobile check deposits.
Partnerships with large institutions can also give smaller and newer FinTechs access to larger markets and business networks. Additionally, the partnership between FinTechs and financial institutions can be quickly scaled up or down, depending on consumer response and overall needs. If the initial partnership is a success, the companies can deepen the relationship and add more services and features. This agility, innovation and customer experience upgrade provided by FinTechs enables mature financial institutions to explore new customer segments and engage new markets with an up-to-date, digitally prepared set of services.
Continued collaboration and partnerships between FinTech companies and banks are essential for the future of the financial services industry in London – not only to meet the fast-changing expectations and needs of customers, but so the UK can continue growing and increase its international reputation as one of the top FinTech markets in the world.