Fintech investment in the UK has exploded by 500% in the last three years, compared to 170% for the USA and 133% for Europe.
Since 2018, the UK fintech market has been outstripping the USA and Europe for investment deals, and in the first quarter of 2020 the UK sealed nine investment deals over $1m – approximately double that of the USA (6) and Europe (4).
The report identifies what the most popular fintech products and services will be in 2020:
- Borrowing & Lending
- Messaging & Communication
Tom Chambers, Senior Manager – Technology (London) at Robert Walters comments:
“Fintechs were not initially seen as direct ‘competition’ to traditional banks – with their products and services differing vastly.
“However, over the past 12-18 months we’ve seen fintech’s apply for banking licenses which means they can now expand their offering to include overdrafts, guarantee deposits, and the ability to set-up direct debits.
“Perhaps the most drastic change was governments swift action to ‘shake-up’ traditional lending and allow fintech companies to be an official loan provider for the government 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.”
In Q1 of this this year, London fintechs have generated almost as much investment ($114m) as they did for the entire year of 2017 ($148m) – highlighting the significance of 2020 for the sector.
Tom Chambers comments: “London has done a stellar job in proving its return on investment when it comes to VC funding – and it is no surprise that the City received 80% of the total fintech funding that comes into Europe.
“However the current climate is like nothing we’ve seen before, and so fintechs should be mindful of their balance books.
“Whilst confidence for fintech investment has been high before, we can expect VC’s to be cautious throughout the rest of 2020 and unlike before will shy away from those fintechs that are rapidly running out of capital.”
In fact, if VC investment in 2020 grows at the same pace as it has done in Q1 then the sector will see a 73% drop in investment in London.
According to the Robert Walters report, fintechs best placed to ride out this crisis will be those involved in lending.
Ben Litvinoff – Business Director at Robert Walters comments:
“As normal restrictions on lending are being waived during COVID-19 to enable companies to ride out the crisis, artificial intelligence (AI) will play a key part in enabling the financial services sector to provide simultaneous support to thousands of businesses – at a rate far greater than the capacity of their current underwriting teams. As a result, AI-driven fintech lenders will be the biggest ‘winners.”
JOB GROWTH IN PAST YEAR
Despite Brexit rumbling on for the past few years, the UK remained an attractive hub for fintechs. Growth of the sector can be illustrated by the ongoing increase in vacancies since 2018 – up +16% in 2019, and +53% since 2017.
Tech continued to dominate the hiring agenda – accounting for 46% of job vacancies within the sector. Tech roles increased by +6% last year, and by +45% since 2017.
REGIONS MISSING OUT
Fintech remains London-centric, where the growth in tech vacancies is primarily in the capital where vacancies increased by +31% since 2017.
The concentration of VC funding in London is evidenced by the downturn in regional vacancies in 2019 compared to the previous year, with investment typically going into firms based in the capital.
For context, in 2018 there were 50 fintech deals of $1m or more within the UK, of which 45 were in London.
In 2019, the number of investments into UK fintechs had nearly doubled (96), however only 8 were into regional businesses (under 10%).
Ahsan Iqbal, Director of Technology (Regions) at Robert Walters:
“If the government are serious about levelling up the country to catch up with London, then serious thought needs to be given into how and why London based businesses remain so much more attractive to VC’s.
“Work is already being done in Birmingham with HS2 and within Manchester, Leeds and Liverpool to grow the Northern Powerhouse.
“In the last 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.”