Fintech
Regional innovation can help the UK retain its fintech crown
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.