The pandemic has irrevocably changed the way people manage their finances. Post-outbreak, 70% of UK individuals use less cash, around half expect to use more contactless payments, and a third now use digital applications as a payment choice. As a result of the rapid digitalisation within finance, the UK fintech market, especially in London, is thriving and has a chance to continue its exponential growth.
There has been a global race to be the leading fintech centre for a number of years. Changing customer expectations because of the COVID-19 pandemic only adds to the urgency, especially with the worldwide fintech market forecasted to be worth £380bn by 2030. For the UK fintech market to grab hold of its share of the global revenue and London to remain the world’s fintech capital, action is required from both the private and public sectors.
After the US, the UK has the second-most international financial activity and is the world’s largest centre for international debt issuance, commercial (re)insurance, and foreign exchange trading. Recent research by Innovate Finance reveals $4.1bn was invested across 408 deals in 2020, showing the invaluable nature of the fintech industry to the UK economy. The UK’s fintech companies, particularly in London, have a role to play in driving persistent economic recovery and, in many respects, the sector is just getting started.
London is home to over 2,100 fintech companies, more than any other city. These companies are innovating to meet evolving demands, enabling them to take advantage of new high-speed and large-scale opportunities in the fintech industry. With the rapid escalation of growth and demand in the fintech industry, the job market has seen a 61% growth in demand since the beginning of the pandemic.
The UK is home to some of the world’s best universities and MBA programmes. This, combined with a high share of relevant graduates, provides businesses in the UK with a world-leading pool of entry-level talent to fill the developing demand in fintech jobs.
London is also home to most of the Fintech 100 firms. The understanding and aptitude of fintechs based in London showcase the city’s strong position to advance beyond other international powerhouses. However, globally other markets are also progressing.
The challenge is for the UK to avoid being left behind as other countries grow their fintech infrastructure and offerings. London cannot take its international fintech position for granted as countries look to learn from the success of the UK. Instead, the city collectively needs to take steps to maintain its position and increase market share in the years to come.
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Fintechs have an opportunity to strengthen and secure the UK’s position as the global fintech centre of choice and accelerate economic growth. So, the question is – how can the UK continue progressing in fintech and increase its market share?
Adopting a well-defined agenda could increase fintech market share for UK-based companies from 10% to 12% resulting in a £46bn Fintech market by 2030. Capturing a larger share of the fintech market will fuel innovation, technology, and job growth for the UK.
The Kalifa Review, an independent report on the UK fintech sector, provides a blueprint to grow the UK fintech market’s international competitiveness and identify priority areas to support the UK fintech sector. It sets out a series of proposals for how the UK can build on its existing strengths, create a framework for continued innovation, and support UK firms as they look to scale.
Ron Khalifa himself states: “The UK cannot rest on its laurels if it wants to continue to lead innovation in financial services. As the rest of the world watches what we do, all of us – banks, insurers, government, regulators, fintechs and professional services firms have a part to play in implementing the recommendations.”
Key recommendations for increasing innovation
The UK remains a hotbed for payments innovation and broader fintech. While this doesn’t show signs of slowing down, continued coordination is necessary to drive the development of the industry. Steps to be taken to build the UK’s global fintech market share should include:
• Building the pipeline of top talent: With esteemed education at our fingertips in the UK, to continue meeting the inevitable demand for more talent in fintech, the industry must retrain and upskill adults. This may include access to short courses from high-quality education providers at low cost or creating a new visa opportunity to enhance access to Global Talent for fintech scale-ups. If corporations and governments come together to create and back these types of initiatives, there will be a healthy pipeline of top fintech talent homegrown in the UK.
• Payment revolution: Traditional financial institutions need to consider their payment strategy to excel and transition to the new digital finance world with ease and capture a slice of the fast-growing market. Offering swifter payments solutions will enable financial institutions to position themselves for success post-pandemic and post-Brexit, which will improve the UK’s recovery over time. To achieve this, quality national connectivity like 5G will be essential to leverage the output and continue momentum.
• Productive partnerships that scale innovation: Expert fintechs can help financial institutions capitalise on success. By working together in strategic partnerships, financial institutions can accelerate innovation while fintechs offer them the benefits of unlocking capital, increased distribution access, and compliance infrastructure. Financial institutions in partnership with fintechs will also gain access to improved digital solutions, new markets, and increased capabilities to boost business, among other advantages. The partnerships must be underpinned by a framework of regulation that encourages innovation but creates a standard to protect the partnership as well as the consumer.
The fintech industry will be vital in driving London and the UK’s future prosperity as a major export and inward investment source. However, just because the fintech sector is experiencing growth and development now doesn’t mean it will sustain itself in the future.
The UK fintech market’s prestige must be protected and built upon – instead of taken advantage of. Coordinated action and initiatives with support from the private and public sectors will help maintain London’s position as an international centre for fintech and financial services excellence. Ensuring London’s standing as a top fintech player not only guarantees a healthy market share, but also continued economic recovery and limitless future success.
Written by Dima Kats, CEO at Clear Junction