Sunday Editorial: London sheds its trad roots as banking sector walks hand in hand with fintech revolution

Britain is not normally synonymous with entrepreneurship, and has for the last twenty years been very much home to an economy which relies on large financial institutions and public sector departments, and to complement this structure perfectly, an obedient workforce of salaried employees with a mortgage and a pension.

Unlike notorious tech R&D mainstays San Francisco, Tel Aviv and pretty much every major city in mainland China, the United Kindgom stuck firmly to traditional roots – until now.

Although Britain’s fiscal prowess remains almost completely London-centric, the wood-paneled chambers of old are rapidly giving way to fintech startups, and the new-found modernity of the Square Mile is evident and notable by the vast contrast between the plate glass offices of avantgarde thought leaders and the creaking infrastructure that lies just 1 mile in any direction of the financial district.

London’s USP – The big banks are backing the new generation of financial innovators

At Britain’s most recent general election, the Conservative party was freed from the anti-business shackles of its coalition with the Liberal Democrats, allowing Chancellor of the Exchequer George Osborne to fully implement his business-friendly policies, one of which included the necessity to advance technologically, and the pledge to back financial technology companies as the realization that modernization would lead to prosperity.

Mainland Europe does not have a fintech business of any magnitude, thus is virtually absent from participation in global electronic trading order flow, be it interbank or retail – Deutsche Bank AG (FRA:DBK), for example, conducts the vast majority of its interbank FX business from its London headquarters – and legacy industry and government subsidy permeate mainland Europe’s business infrastructure.

Germany manufactures cars, and is one of the stronger economic powers in Europe. This is a legacy business that no longer carries the prestige that it did thirty years ago. Germany is still producing diesel engined hatchbacks, just as it did in the 1980s, with very few real technological breakthroughs since then, whilst Silicon Valley produces a fully electric 691 bhp example of the future on wheels. There is very little doubt that legacy industry of this type is no longer as viable as it once was, and that Shanghai and Seoul are manufacturing an arguably superior product in giant volumes.

Many other EU member states have agrarian economies and therefore are completely absent from the interaction with the large financial centers of the world which power not only innovation, but the global economy itself.

By elevating itself into the realms of the top fintech centers, and start-ups appearing in what was once the industrial wastelands of Shoreditch – an area so packed with fintech start-ups that it has gained the nickname Silicon Roundabout – London has a massive advantage over many other fintech hubs in that the large banks are becoming increasingly supportive of newcomers with clever ideas, and are beginning to back them.

Hot air? Not according to the figures

Mr. Osborne’s pledge was clearly not just pre-election hot air. According to London & Partners, which is an agency funded by the British government which aims to support London’s economy, out of the £1.48 billion in fintech funding which was provided across the entirety of Europe in 2014, £343 million was provided in London alone, and that more than half of the entire fintech enterprises for the whole of Europe are channeled into London. This was a very good basis upon which Mr. Osborne could encourage further initiative post-election.

The agency stated that

Major new tech funds setting up in London from around the world include Santander (£60m), Index Ventures (£328m), Google Ventures (£76m) – London & Partners

Another benefit of London’s newfound appetite for fintech is that not only is extremely secure funding available, but the infrastructure and brains are all local. Many highly experienced executives from large institutions are founding fintech companies in London, an example being former Credit Suisse bond trader Raja Palaniappan, who established Origin Markets, a platform which intends to revolutionize private placement bond issuance by removing the need for intermediaries, many of which are large investment banks such as Goldman Sachs.

Mr. Palaniappan, an American citizen, specificially chose London as a base for Origin Markets over New York or Silicon Valley for these exact reasons.

He told Institutional Investor

“London does have a competitive advantage in fintech because you’ve got technology in Old Street (Silicon Roundabout) and finance on Liverpool Street and they’re about three quarters of a mile apart. In the US, technology lives on the West Coast, and finance on the East Coast and there is little consolidation between the two.”

It does indeed appear that the concept of Osbornomics was not just limited to a very shrewd budget, but at stoking the financial sector in London into a wave of modernity, thus almost future-proofing itself and bolstering its position as the world’s largest financial center.