Fintech
Five years of fintech in the UK between Brexit and Covid-19
Payrow is a Business Reporter client.
The UK fintech sector has transformed over the past five years thanks to technological advances, evolving consumer expectations and regulatory changes. Despite challenges such as Covid-19 and Brexit, the sector has shown remarkable resilience. Aleksei Glukhov and Evgeny Mishchenko, co-founders of Payrow, a British financial technology companyprovide their opinions on the evolution of the sector.
The impact of Covid-19 on UK fintech
Covid-19 has accelerated the digital transformation of the financial sector. As businesses and consumers moved online, fintech companies saw a surge in demand for innovative solutions. Traditional banks, burdened by legacy systems and physical branches, have struggled to adapt quickly. For Payrow, which operates a fully online business model, the pandemic has highlighted the benefits of digital innovation. This period has reinforced the importance of a digital approach in financial services.
Changing consumer expectations and behavior
Consumers now trust fintech brands and neobanks more, driven by the growth of online services. fintechs have started developing excellent apps and integrating all the necessary services for B2C and B2B markets. The use of Open Banking technology has expanded the range of services provided. Users have become accustomed to convenient interfaces, fast transactions and low fees, often preferring fintechs to traditional banks. Fintech companies are evolving to meet these growing needs, offering comprehensive solutions for businesses and consumers.
Enhanced cybersecurity measures
The growth of online services has led to an increase in cybercrime, prompting fintech companies to strengthen their cybersecurity measures. Investments in advanced security technologies, machine learning, artificial intelligence, and multi-factor authentication have improved user security. Data encryption, regular monitoring for breaches and strict security policies ensure that sensitive information remains safe. Partnerships with cybersecurity firms help fintech companies leverage expertise to stay ahead of cyber threats. The UK government has also implemented measures to improve national data security, including new laws imposing stricter security standards.
Brexit and its consequences
Brexit has had a significant impact on licensing processes and market access for UK-based fintech companies. They are now faced with the need to obtain European licenses and comply with EU regulatory requirements, which introduces additional costs and complexity. These changes have created new barriers and altered cost structures, negatively impacting businesses. The UK Government has introduced initiatives to support the sector, including expanding public funding, offering tax credits for research and development and providing tax incentives for investors through schemes such as Enterprise Investment Scheme (EIS/SEIS) and Venture Capital Trusts (VCT) to promote innovation and growth in the fintech sector.
Investment trends and challenges in the UK fintech sector
Unfavorable changes have affected fintech venture capital investment trends. With significant fluctuations in global investment levels, leaders of the UK financial technology sector are urging the Government to increase tax incentives to attract more investment. The Mansion House Compact, introduced by Chancellor Jeremy Hunt in July 2023, is an agreement for pension funds to channel more investment into private companies, although more transparency is needed about where pension funds plan to invest.
The current investment environment in the UK for fintech startups is considered conservative, with lower valuations than in the US and a cautious approach from venture capital investors. But despite competitive pressure from fintech hubs in the US and EU, the UK offers unique advantages to fintech startups, including early-stage support through initiatives such as the Global Talent Visa and tax incentives for early-stage investors through the Enterprise Investment Scheme (EIS) and the Seed Business Investment Scheme (SEIS). However, there remains a funding gap for growth-stage UK startups.
Key factors driving fintech growth
Despite the challenges, the outlook for the fintech market is promising, with the continued implementation of new technologies. Today we are witnessing a technological surge, especially with the practical application of artificial intelligence in the fintech sector.
Second McKinsey reports, the value of the industry is expected to reach between $11 and $17 trillion by 2030. Data is becoming the new currency and, combined with artificial intelligence and other technologies, is set to revolutionize industries and transform the technological landscape. Fintech companies, traditionally more responsive to innovation than traditional banks, will see revenue growth driven by factors such as business process automation, implementation of generative AI and niche products that address specific customer pain points .
Payrow is a British fintech company that offers a full suite of services designed to automate and simplify financial management for small and medium-sized businesses (SMEs). With features like multi-currency accounts, automated invoicing, expense tracking, and support for complex ownership structures, Payrow simplifies businesses’ financial operations.