Has the UK Fintech scene reached its peak?

Rick Steves

With the Money20/20 Europe week that has attracted 3,500 attendies currently well underway in Copenhagen, the 2016 FinTech50 list has been announced today, comprising the 50 European most disrupting businesses in the financial sector from a total of 1,200 companies representing over $19 billion in investment during 2015. The FinTech50 list details the European FinTech50 superstars […]

Has the UK Fintech scene reached its peak?

With the Money20/20 Europe week that has attracted 3,500 attendies currently well underway in Copenhagen, the 2016 FinTech50 list has been announced today, comprising the 50 European most disrupting businesses in the financial sector from a total of 1,200 companies representing over $19 billion in investment during 2015.

The FinTech50 list details the European FinTech50 superstars of the future, and is formulated by a panel of 30 industry experts from across Europe after extensive research.

Julie Lake and Nicky Cotter, Founders of The FinTech50, commented: “2016 marks a pivotal point at which big banks and traditional financial institutions are starting to collaborate more closely with the industry’s newest players.  London FinTechs feature in just over half the list – in part due to the UK’s favorable regulatory environment as well as access to funding and talent. But London’s status is also being very energetically challenged by FinTech communities in capitals such as Amsterdam, Berlin and Stockholm.”

The UK does count with 26 firms out of the 50 selected firms. A sign of continuation of the way the country, regulatory authorities and the City have been embracing technology ever since the financial crisis of 2008.

British multinational professional services and consultancy giant Ernst & Young produced a report about the subject for the UK Treasury called “UK FinTech: On the cutting edge” and published on 24 February 2016. The extensive research found that the UK FinTech sector generated more than £6 billion in revenue in 2015, employing a workforce of approximately 61,000, still behind California’s 74,000. The whole financial services sector employs 1.2 million people in the UK.

Compared to California, New York, Singapore, Germany, Australia and Hong Kong’s FinTech scenes, Ernst & Young ranked the UK first as the strongest “ecosystem”, followed by California and New York, with the biggest competitive advantage being the policy environment headed by a very proactive Financial Conduct Authority, that not only asks experts for input but also created Project Innovate, designed to promote innovation in financial products with tax incentives such as SEIS and EIS, nurturing even unregulated firms with restricted authorizations for test purposes.

The question that now arises is if the leading position of the UK FinTech sector has peaked. Many countries have been developing FinTech-friendly initiatives in recent months, trying to emulate UK’s regulatory policy and initiatives. Even the United Nations has been recommending to countries’ regulators around the world to act more like the FCA.

This week, giant retailer Overstock’s $16 billion investment in Bitcoin-exchange Bitt was promoted by the Barbados government and the digitized version of the Barbadian dollar will have the full backing of the Central Bank of Barbados, a first in the world.

Last week, Japan announced plans to ease restrictions for Fintech startups and allow banks to buy stakes of up to 100 percent of non-finance related companies, instead of the current 5-15 percent, which would permit them to fully own robotic investment advisory services and distributed ledger technology (DLT), such as blockchain.

Singapore announced that both the central bank and the National Research Foundation (NRF) will set up one-stop virtual office on May 3, where they will be reviewing funding schemes.

The Dutch central bank and China’s PBoC have also made embracing remarks regarding Fintech and digital currencies.

Although the UK FCA’s business plan 2016/2017 published today calls for more innovation and promotes a safe space to test it through the “Regulatory Sandbox” to be launched in the Spring, as well as inviting the industry to set up a not for-profit company to act as a sandbox “umbrella”, the UK’s leading position in the FinTech world is in risk.

Progressive policy and the maturing of FinTech hubs will naturally develop regional specializations, like cybersecurity in Israel and financial identity in Estonia, putting pressure on a diversified UK. Moreover, China is set to challenge the leading FinTech sectors as funding grows exponentially, from £1bn in 2012 to £8.6bn in 2015, and might benefit from the government’s supportive policy to businesses, backing them up with investment, influence and know-how.

In order to retain the leading position, the UK and the FCA will have to boost the market and attract more international capital and human resources. The Ernst & Young report stated:

“The FCA is highly regarded and should now consider scaling-up Project Innovate to strengthen support for a larger number of domestic and foreign FinTechs and, increasingly, established tech businesses. The FinTech sector would also benefit from the FCA forming a clear strategy on high-impact initiatives such as RegTech and the Regulatory Sandbox platform”, adding that the Treasury should act as a cheerleader to drive further adoption.

Furthermore, EY called to create a FinTech “delivery body”, to drive high impact policy initiatives to implementation as quickly as possible, practical business support, build “bridges” to support UK FinTechs expand internationally, and strengthen the “talent pipeline”. Regional Centers of Excellence, investor-focused programs, broader tax iniciatives, and promoting mass FinTech adoption were other recommendations made by Ernst & Young.

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