It’s not understated to say that the UK fintech arena is flourishing. As the total capital investment into fintech exceeded $102 billion globally in 2021 - an 183% increase from 2020 – the UK , home to over 40 of the world’s 157 fintech unicorns, saw a total $11.6 billion invested, second behind the U.S.
However, in the post-Brexit economy, financial regulation and public sector support will play a crucial role in underpinning the UK’s thriving fintech ecosystem. Now people are looking at the UK’s new relationship with the global economy. Here we explore what the UK needs to do to retain its position at the forefront of global fintech.
The UK as a fintech hub
London has, for many years, been considered the foremost global fintech hub, and with good reason. The city currently has over 2,100 fintech companies and has generated 17 unicorns - London venture capital investment is four times higher than its next European competitor, Berlin.
Firms based in the city are also leading the way in terms of regulatory approval; as of September 2020, there were 198 authorised EMIs in the UK, the highest number of all jurisdictions in the EEA.
This momentum shows no signs of stopping. In the first 6 months of 2021, UK fintechs generated £4.1 billion in equity raises, topping the amount raised in the entirety of 2020. Furthermore, our diverse talent pool now includes experienced industry veterans who are on their second or third fintech journey and can pass crucial lessons onto the next generation of innovators.
And it’s not just London. Pods of fintech activity are scattered across the UK. According to UKTN, “The Welsh capital is considered to be one of the fastest-growing tech hubs in the UK... Cardiff is growing as a world-class fintech cluster. The fintech region in this city is one of the UK’s most valuable and is touted to contribute up to £2 billion of GVA (Gross Value Added) to the Cardiff Capital Region’s economy.”
GPS customer, ANNA – an app, card and a business account that helps creative small businesses and start-ups with their financial admin – has a base in Cardiff, as does GPS partner CurrencyCloud.
Moving North, to the North-East of England a report identified 58 firms that are active in the fintech sector, including established financial sector organisations, tech companies, and start-ups. Sage, the UK’s largest listed tech company, is just one of the companies based in this region.
The impact of the pandemic on the global fintech ecosystem
The Covid pandemic changed the way consumers paid for goods and there has been a huge growth in the adoption of digital payment propositions. Demographics who had previously not interacted with digital payments or banking took their first steps.
Because of the agility of UK fintech, the industry was able to step in and deliver support during the pandemic where some incumbents could not move as fast. For example, GPS supported long-term customer, Starling Bank, to launch its Starling Connected card, a debit card which enables friends and family members to shop on behalf of someone else.
With flexible working practises, and working from home on the rise, more people are thinking about whether they can take their work abroad, but stay with the same employer, leading to another digital payments response being required from fintechs.
Digital payments growth as a result of pandemic
The pandemic accelerated the already established move towards digital payments in the UK.
In the UK, six million adults (or 12% of the population) downloaded an online banking app for the first time during the first lockdown.
- 90% of face-to-face transactions made in April were contactless, and in July 2020 there were 1.5 billion debit card transactions (20.8% more than in June 2020).
- 66% of people plan to use more contactless solutions moving forward.
- Contactless transactions reached their peak in December 2020 at 900 million, totalling £12 billion in revenue and representing a 65% YoY increase.
- 80% of consumers saying they prefer card payments over cash.
While the pandemic lead to an increase in digital payments in the UK, post-pandemic, many have continued with their digital conversion. There is now an expectation from customers that the agility, speed and transparency of payments delivered in the pandemic is continued. A key note for financial service institutions when exploring their product solutions. One area for example is cross-border payments. As customers begin to travel there is now more of an expectation for payment propositions that deliver the agility, speed and transparency that are present in their digital payments at home. UK businesses like GPS customers Caxton and GPS partners Currensea have answered this call and serve customers cross-border currency in a medium fit for this ‘new world’.
Fintech hubs around the world
Sweden has historically been a tech innovator. From being the birthplace of Minecraft to the BNPL giant Klarna, this country is also leading when it comes to cashless adoption as they look at the issuing, handling and processing of cash. Reports predict that they’ll be fully digital by March 2023, which you can read about this in more depth here.
- As of the first half of 2021, 1.58 billion euros were invested into fintech firms in Sweden.
- Stockholm-based companies accounted for 1.53 billion euros of investments in the first half of 2021.
- GPS customers in Sweden include: Bokio AB, Transact Payments Limited and Paygoo AB.
According to Mordor Intelligence: “Fintech adoption in Germany almost doubled during the period 2017-18, with German use now at the same level as the global average. German banking licenses are strictly regulated by the Federal Financial Supervisory Authority, Bafin. FinTech founders have reported difficulties while applying for a banking license and navigating the stringent regulations to enter the marketplace. The market is expected to grow annually by 9% (CAGR 2021-2026).”
- 2021 saw Germany gain 2.6 billion in investments in fintech.
- In the first half of 2021 fintechs in Berlin gathered approximately 1.6 billion Euros in investment and venture capital.
- GPS customers in Germany include: Stocard, Crosscard, Xpay Development Gmbh, and infinnity financial technologies GmbH.
Singapore’s fintech industry is going from strength to strength. The APAC region as a whole is demonstrating growth — fintech investment in the Asia-Pacific region almost doubled — from US$14.7 billion in 2020 to US$27.5 billion in 2021.
While Singapore saw record levels of investment in crypto and blockchain with US$1.48 billion transacted across 82 deals in 2021, as compared to US$109.75 million over 26 deals in 2020. Home to international fintech events, including the Singapore Fintech Festival, it is also where GPS has a base, recognising the importance of this fintech hub
- Singapore’s fintech industry hit a five-year high with 191 deals transacted in 2021.
- Total transaction value in Singapore also increased by 59% year-on-year at US$3.94 billion, across VC, PE and M&A deals in 2021, up from US$2.48 billion in 2020.
- GPS customers in Singapore include: Volve Solutions Pte Ltd, TroyGold, and FXR Business Services Pte. Ltd.
The Kalifa Review of UK FinTech
GPS were honoured to be invited by HM Treasury to participate in the UK FinTech Strategic Review (known as the Kalifa Review).
The Kalifa Review provided a clear pathway on how the UK can continue to fully capitalise on the global economic opportunities ahead. The review covered key topics included policy and regulation, skills and talent and investment. These are just a few of the areas which require focus if the UK are to continue as a global fintech powerhouse.
Investors added £1.8bn into UK fintechs in the first half of 2020, an increase of 22% over the second half of 2019, but will the post-pandemic environment plus inflation increases and interest rate rises impact growth? Will it also increase caution in investors?
CEO Joanne Dewar, recently signed an open letter on behalf of GPS, along with more than 70 fintech founders and executive leaders including Revolut, Klarna and Plaid. The letter, published by Innovate Finance, was in response to progress made one year on.
Our CEO, Joanne Dewar, shared her views in an interview published in Forbes: “Many international governments have read the Kalifa Review and rightly view it as a powerful blueprint for the future of FinTech. The challenge for Britain is that some governments appear to be adopting its recommendations faster. They are systematically investing in their FinTech innovation ecosystems with a view of boosting their long-term economies.
“We all want Britain to maintain and grow its position as a FinTech leader. Our concern is there could be a risk of the UK being leapfrogged by others should the UK not take action fast enough.”
As Innovate Finance outlined in their open letter, our recommendations through the Kalifa Review were designed to:
- Foster job creation and high-income tech-based employment across the UK, supporting the Government’s ‘levelling up’ agenda.
- Better leverage the FinTech sector as a core asset for Britain’s international competitiveness, by enabling more UK FinTechs, like GPS and our customers, to achieve global scale and reach, and lead on regulation and standard-setting.
- Help citizens and small businesses access more, better and cheaper financial services, creating a more inclusive, democratic and sustainable financial services sector.
We think there has been progress, but we believe more can be done to help the UK’s role as a global fintech hub.
And UK fintechs can help themselves by utilising the experience and expertise that already lies in the UK fintech eco-system and creating and reinforcing those relationships. As an enabler of the fintech pipework, GPS has been alongside UK-headquartered customers as they expand globally. GPS customer Zilch for example has been on a huge growth journey, and now stands as a double unicorn with two million customers, just six months after they hit the milestone of one million customers. A stellar illustration of the UK’s as a leading hub for financial technology.
Because GPS has bases around the world, we have a global perspective with real local experience, including regional regulatory knowledge from our local experts. It is this invaluable support which can help open up the world for businesses.
GPS can facilitate access to multiple jurisdictions through one configurable platform. It benefits businesses by helping to deliver a smooth customer experience, and because we have the in-house expertise, can save costs on resourcing. What’s more, the fintech industry demands agility, so the ability to add solutions to our existing Apex platform is a real benefit. Plus, with GPS you receive the skills and insights from our global team of experts at who sit at the heart of the payment ecosystem.
As a centre for financial technology, the UK fintech industry has had everything thrown at it in recent years. From Brexit to a pandemic to historic interest rate lows and rises again. What we have demonstrated as a hub is our resilience and ability to demonstrate agility – by utilising the power of partnerships. We have also shown that through partnerships we can deliver the propositions that customers and their changing lifestyles, are demanding. We think with the right support and resource, the future is looking bright for the UK as an epicentre for fintech innovation.