In the first half of 2021 – a period that coincided with a full-on second wave of the Covid pandemic – Britain’s fintech industry drew in investment to the tune of $5.6 billion, according to figures published by Innovate Finance.
No surprises there perhaps. The financial technology segment has been the poster child for the U.K. innovation economy for so long now that we tend to take it for granted. We might even assume this is a corner of the technology market that can pretty much look after itself. From payment apps and money management tools to mobile-first challenger banks, consumers have embraced digitized financial services, Meanwhile, incumbents in the market have been buying in technologies to underpin their own digital transformation plans. This is a sector with momentum.
But perhaps we shouldn’t assume too much. At the beginning of this year, the U.K. Treasury published the findings of a review by Ron Kalifa into the kind of support required to ensure that Britain’s fintech industry continues to not only grow but also establish a global leadership position.
As the year draws to a close, some of the measures recommended by the report are being put into practice. But why were they needed and what will they achieve?
One person who might have the answer to that question is Janine Hirt, CEO of Innovate Finance, a trade body established to represent and promote the global fintech industry in the United Kingdom. When we spoke in mid-December I was keen to find out more about the challenges facing the sector in the months ahead and how they can be addressed.
Hirt is – to say the least – highly optimistic about the prospects fintech, pointing out that with $5.6 billion raised in the first half of 2021, the industry is on track for record investment over the year as a whole. Equally important, thanks in part to the strength of the wider financial services industry, the U.K. is one of the global leaders in fintech development, with London in particular regularly in the top five when important hubs are ranked.
But as Hirt acknowledges, nothing can be taken for granted. “We are a leader,” she says. “But it is not a given that we will keep that leadership position.”
And in that respect, Britain’s fintech ecosystem does need active support to ensure that it remains competitive with the world’s other major centers, including the Bay Area, New York and Beijing. The imperative now is to maintain an ecosystem in which companies not on scale up but also stay headquartered in the UK.
So what are the challenges? Well, arguably one of the most pressing is the ability of London and the rest of the U.K. to attract global talent. There is something of a local difficulty here – some might argue an own goal – in that Britain’s departure from the European Union has meant an end to visa-free freedom of movement. Visas are available but an entrepreneur from Latvia or the Czech republic may think twice before going through the application process when it is easier simply to relocate to Berlin or Amsterdam without having to navigate any tedious, immigration-related bureaucracy.
For its part, the British government would argue that it is now seeking talent from around the world. To that end, the Kalifa Review recommended that the tech visa system be improved to attract more skilled workers and entrepreneurs into the U.K. ecosystem.
“We are quite positive about this,” says Hirt. “A new Scaleup Visa will be coming into force in 2022. We are keen that it works for fintech.”
The clue is in the name. As announced by Chancellor Rishi Sunak, the Scaleup scheme will allow workers with a job offer from a high-growth company to apply for fast track visas. As things stand, Scaleup companies are defined as those who can demonstrate three years or more of 20 percent annual revenue or jobs growth. There will also be a new points-based visa scheme.
Bringing in skilled workers from overseas is just one part of the talent picture. Hirt stresses the need to bring home-grown talent into the fintech industry – something that Innovate Finance is actively engaged in. “We work with schools and universities,” she says. “We have also made progress in diversity.”
Innovate Finance would like to see a more diverse Fintech Industry in terms of gender, ethnicity, and social-economic background. This would not only be important in terms of inclusion but also help to address talent shortages.
Britain’s list of high-profile fintechs includes Revolut, Monzo, Starling Bank and Tranferwise. Along with others in the industry, these companies have shown it is possible to have an international impact. Looking forward, Hirt says the ecosystem needs to continue to support not only startups but also those businesses that are scaling rapidly.
Again, she is positive about steps taken at the governmental and regulatory levels. One important initiative is the establishment of a so-called Scalebox – essentially a sandbox – by the Financial Conduct Authority. Like the Scaleup Visas, this is due to come on stream in 2022. “Scaling companies face different challenges,” says Hirt. “Fintech companies don’t have the compliance teams that you will find in a Santander or JP Morgan.” Under the umbrella of the regulator, the Scalebox will help fintechs deal with with regulatory and compliance issues.
For businesses that have scaled – or who aspire to do so – Hirt also sees a need to make it easier and more attractive to choose London for IPOs.
Britain’s Fintech sector is entering 2022 with some confidence. There is, however, more that can be done to support businesses working in the sector – particularly around access to talent and the continued development of a regulatory framework that protects the consumer while encouraging innovation.