Fintech

Regional innovation can help the UK retain its fintech crown

Published

9 months ago

5 July, 2024

UK fintech sector can benefit from regional hub growth

The UK has long been a fintech powerhouse, with its startups often attracting the lion’s share of investment. But last year, climate tech startups has surpassed financial technology for the best-funded segment.

While financial technology has regained first place for funding in the first quarter of 2024, the data has raised questions about what the UK needs to do to maintain its leadership in financial technology.

There has been a notable decline in investment across all technology sectors, and financial technology is no exception.

Kirsty Rutter, director of fintech investment at Lloyds Banking Group, says the last two years have been a “challenging market environment, with rising interest rates offering investors alternative routes to returns that may involve less risk than investing in an early-stage company.”

Despite a tough couple of years, with funding down 65% year-on-year, the UK remains Europe’s strongest fintech hub. Globally, it’s only behind the US in terms of investment.

Janine Hirt, CEO of Innovate Finance, an industry association, says there are several measures that can help the UK’s fintech sector maintain its momentum.

“These include areas such as ensuring continued access to global and domestic investment and talent; promoting a more proactive regulatory regime and ensuring clarity on regulation; and strengthening policies that support companies and entrepreneurs from early-stage to high-growth,” Hirt says.

Strengths of FinTech in the UK

The UK fintech sector is a broad community that encompasses many sub-divisions, such as open banking, payments, digital challenger banks and regtech.

Hirt points out that there are more than 1,200 fintech companies operating in the payments sector in the UK, which have attracted more than £20bn of investment over the last decade.

“The UK has historically been a leader in payments innovation and we have also led the way with our open banking initiatives – now is the time to ensure we continue with this progressive approach, deliver open banking and move towards open finance and, ultimately, open data,” says Hirt.

One of the UK’s most successful payments companies is London-based Wise, formerly TransferWise. The company listed on the London Stock Exchange in 2021 and its most recent results showed that after-tax profits increased 212% year-over-year.

Meanwhile, the regtech market is expected to be valued at $87 billion by 2028 globally, according to Verified Market Research, and the UK is well positioned to capture a good share of this opportunity.

Regional Fintech Growth

While London is widely regarded as the world’s leading financial centre (and the UK capital continues to dominate when it comes to finance), there is a wealth of regional fintech innovation poised to drive growth in the UK’s fintech sector.

“London stands as the leading global financial technology city hub, attracting more investment than New York or San Francisco,” says Hirt. “However, it’s important to note that we’re seeing amazing financial technology companies launch, grow and thrive across the UK, which is one of the reasons why the UK is such a great place to build a growth company.

“From Cardiff to Leeds, Manchester to Edinburgh, the UK’s clusters and cities offer unique opportunities and advantages for entrepreneurs looking to build and scale impactful businesses.”

Leeds, for example, was named one of the UK’s top four fintech hubs in Kalifa Reviewa 2021 report highlighting opportunities for the sector in the UK.

“Leeds has long been a growth area for both financial services and technology, and in recent years we have also seen it become a global hotbed for fintech startups and scaleups,” says Stuart Clarke MBE, founder of UK Tech Week.

“Apart from local talents like green bank Tred and Dealtrak, the city has also seen international fintech brands like PEXA and LHV Bank build a presence there.”

Businesses based in the city are supported by Leeds-based organisations such as the Center for Financial Technologylaunched early last year, and Innovation at the University of Leeds.

The Welsh fintech sector currently employs 16,000 people, according to its membership association FinTech Wales. Fintech firms there have collectively raised £53 million in publicly announced funding rounds, up 300% from 2022.

This growth is being driven not only by major fintech companies based in Wales, such as GoCompare, Confused.com and MoneySuperMarket, but also by fast-growing startups such as Delio and Wealthify.

Experts point to a supportive ecosystem and access to talent as key growth factors in Wales.

There are also fintech specialties developing in hubs across the UK. Norfolk is home to 24 fintech companies that have collectively raised £49m, according to a report commissioned by advocacy group Tech East.

The East of England county has the highest concentration of insurance workers outside of London, thanks to companies such as Aviva and Marsh having a major presence in the area. This in turn is sparking a nascent but growing insurtech ecosystem.

Rutter attributes some of the regional growth of the UK fintech sector to localised support groups.

“The UK has very strong regional fintech hubs that directly support and engage the local market, including Fintech North, Fintech Scotland, Fintech Wales, Fintech West and Fintech Northern Ireland,” says Rutter.

“These organizations do a great job of connecting the ecosystem and showcasing the amazing businesses that are growing in the regions. Each region has its own fabulous subculture, with some cities hosting businesses that reflect their history in manufacturing and commerce.”

Keep the crown

Harnessing the fintech innovation that is developing outside of London will unlock further market potential and ensure that UK fintech is less dependent on one city to drive growth, while also spreading talent and capital more evenly across the country.

An example of the potential waiting to be unlocked is Norfolk, which a recent report could be worth up to £100m by 2027 with sufficient access to capital.

The market opportunities for regional technology hubs are significant, with consumer adoption of fintech products and services growing every year.

“Eight in ten adults in the UK regularly use at least one fintech tool, demonstrating the incredible impact fintech is having on consumers across the country,” says Hirt.

Lloyds Bank’s relationship managers have experience in the technology sector and are keen to support the further growth of this vibrant sector. Contact us today to discuss how we can help your business.

Contact Steve Harris, Head of Technology at Lloyds Bank.

Stephen.Harris@lloydsbanking.com

For more information on how Lloyds Bank supports UK technology companies, Click here.

In partnership with Lloyds Bank.

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

9 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

9 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

9 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

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Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

9 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

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To come
Aveni Assistance
Aveni Detection

Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”