How does the UK fintech sector compare with the rest of Europe?

Financial Services | Reports | Technology
Rachel Bentley

Fintech is recognised as one of the UK’s fastest growing business sectors, worth a total of £7bn and employing over 60,000 people. Not only is Fintech emerging as a sector of its own, it’s helping banks and financial organisations better deliver the service their customers are looking for.

It’s certainly something that government is taking seriously, with International Trade Secretary Dr Liam Fox MP recently launching a new investment drive, that will bring together academics, industry experts and businesses.

The collaboration will prioritise investment into the sector and a UK Fintech steering group has been established that will connect companies with global investors.

This followed the Prime Minister’s announcement in June that more than 1,600 new jobs will be created and £2.3bn of private investment into the broader technology sector has been secured to try to create jobs in the sector.

On the developments Dr Liam Fox commented: “The UK is a world leader in the Fintech sector, thanks to our highly-skilled and creative workforce, fair regulatory system and ease of doing business.

“The sector has already attracted £1.8bn worth of investment in 2017 – a 153% increase on the previous year and as an international economic department, DIT is putting technology and innovation at the heart of the UK’s global growth.”

Is the UK a world leader in Fintech?

So, is Liam Fox correct that the UK is leading the way when it comes to Fintech. How does the market here compare with other European economies such as Germany and France and major economies such as China and the USA?

To find out we spoke to Funding London’s Flavia Richardson who said that global venture and M&A activity in Fintech dipped to a five-quarter low in the first part of 2018, with Venture Capital (VC) backed Fintech companies in Europe seeing a pullback in early-stage investment, which was poor compared with the US, which saw a 38% boom in capital and deals invested, in the same period.

On how the UK is shaping up against its European neighbours, Flavia commented: “The UK, despite uncertainty around Brexit, retains its central role as the Fintech hub of Europe compared with other European markets, notably France and Germany. The top UK Fintech deals include a £195m raise by Revolut, a £78m raise by eToro, a £47m raise by Flender and a £42m raise by MoneyFarm.”

Flavia went on to say that in Germany, notable rounds have been raised by N26 (£125m) and SolarisBank (£55m) and in France, investment activity in the sector is on a downward trajectory, perhaps signalling that post-2019 it will not represent a significant competitor for the UK.

Half of Fintech investment

Backing up the trends by Funding London is a recent KPMG report which showed that the UK accounted for over half of the total European Fintech investment.

The report said that the UK’s contribution to European investment stood at £5.7bn, with the UK accounting for 14% of the global total, which came in at £24bn, the same level of investment as 2016.

Anton Ruddenklau, partner & head of digital & innovation, financial services, KPMG in the UK, commented: “The UK’s Fintech market remains remarkably resilient. The final quarter of 2017 saw the most deal activity since 2014, largely driven by payment companies. As we enter a world of open banking,

“I expect that to continue. Large financial institutions still have deep investment pockets, the big banks want to get involved in Fintech and acquire start-ups to help meet their growth ambitions. We’re likely to see more purchasing than investment through 2018.”

On how the UK Fintech scene sits globally, Kent Mackenzie, Global Head of Fintech for Deloitte commented: “The UK compares well with others and always ranks highly in a number of indices published. However, the reality is good Fintech innovation is coming from across Europe, Asia and the US.

“Anywhere that has a rich eco-system (banks, technologists, academics, and funding channels) can always do well in this market, the trick is in understanding how you bring it all together to capitalise on your strengths. The UK also has a fantastically supportive and innovative regulator that ranks right up there with others pioneering and supporting this industry.”

London’s dominance

Regarding London’s importance to the UK’s good standing when it comes to Fintech, Rachel Bentley, specialist with KPMG’s innovative start-ups practice in London, points to the capital’s innovation first approach.

She commented: “London was one of the earliest Fintech innovation centres, so it now has a large number of mature businesses with good traction in the market, clear paths to profitability, and strong value propositions for investors.

“This maturity has helped the UK market to remain resilient in an uncertain economy and later stage investment definitely helped to boost the numbers in the final quarter. At the same time, a positive regulatory climate and strong Fintech ecosystem continue to attract new start-ups and we are also seeing earlier stage activity across the sector, reflecting the diversity of the UK market and a positive sign for future investment.”

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