Tech Nation: ‘the UK is a fintech centre of excellence’
Over the last year, the performance of t...
Greg Michel, Head of Sector Programmes at Tech Nation, tells FinTech why the UK is the best hub for fintech.
Over the last year, the performance of the UK’s digital tech sector has been world-leading, with British firms attracting more capital than any other European country. Our great strength in technology and innovation, built on the UK’s excellence in R&D and creative thinking, is demonstrated by the breadth of tech activity right across the country, and the powerful networks being forged by the next generation of entrepreneurs.
Fintech is a blossoming sector, and the UK is number one in the world for scaleup investment into fintech firms - generating GB£4.5bn in funding between 2015 and 2018. Ambitious fintech scaleups such as OakNorth, Monzo, Starling and Revolut are already becoming household names and growing globally. This impressive growth is generated by the 788 high-growth fintech companies right across the UK at all stages of growth. In Europe, the UK fintech sector has a significant lead, and even dwarfs the combined total of 441 French and German fintech outfits.
For a long time London has been the European capital of finance. In the East of the city, hundreds of financial institutions dominate the skyline and the economy. The majority of fintech firms, 71% are based in London. However, many are choosing to set up shop outside the traditional financial heartlands of the City of London and Canary Wharf. Fintech businesses in Hackney and Westminster are thriving, with 150 companies between them.
This geographic bias is unsurprising. London has always been home to the UK’s and Europe’s most dominant financial services. It is also the centre of governance and financial regulation nationally. In an industry so dependent on legal rules, being close to regulators is invaluable. For instance, initiatives such as the FCA’s fintech sandbox allow new firms to innovate in a closed and safe environment, but the authority’s head office is in East London. Equally, almost all of the UK’s premier fintech accelerators are based in the East End. 85% of the accelerators for UK fintech firms are also in London. These pull factors add up, and go some way to explain London’s dominance in the field.
But fintech is not the exclusive preserve of the capital, with fintech firms found in all UK regions, including the North East, Yorkshire & Humberside and Northern Ireland. For instance, Durham-based Atom Bank is revolutionising commercial lending. Its customer-centric approach to banking makes getting a personal mortgage or loan as easy as possible. Penarth based Wealthify is also a great example of a household name in fintech outside of London. It’s investment platform makes investment accessible to everyone and last year the company exited having raised £2.14 mn. Initiatives like Fintech North and similar ones in Scotland, Wales and the West have also sprung up to showcase the best fintech companies their region and country has to offer.
Last year was an exceptionally strong year for investment in the UK fintech sector as it attracted a record £2 billion in VC funding, including many weighty deals, indicating a maturing ecosystem. What’s more, this is twice the amount raised in each of the three years before. But nearly half of the UK’s high-growth fintech firms are still at seed stage, and we need to feed the pipeline for continued success in this thriving sector. This is why Tech Nation, the scaleup network for UK entrepreneurs, decided to create a sector-specific fintech programme which identifies the rising stars in the industry and helps them scale to even greater horizons.
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Run for the first time in 2018, the bespoke growth programme is specifically designed to pass on the unique knowledge of accomplished fintech entrepreneurs to those hoping to follow in their footsteps. Connections are also made and opportunities created for the founders of the UK’s most promising fintech scaleups. Insight sessions are delivered by renowned entrepreneurs such as Rishi Khosla, Lesley Eccles and Justin Basini, covering topics such as scaling teams, getting regulated, partnering with financial service firms and expanding internationally.
The 2.0 Fintech Cohort will be announced in September and will be looking to replicate the first programme’s success. Key to the fintech programme and to Tech Nation’s ambition for the UK tech sector is to build on the UK’s natural strengths and world renown for investment and talent, and to create opportunities for the most promising companies wherever they are based, so that they can compete on the global stage.
FIVE things fintechs must do to keep investors onboard
New investors flocked to the stock market during the COVID-19 pandemic. Thirty-eight percent of investors said they had never had a brokerage or similar account before opening one in 2020.
Low or no-fee trading options have helped accelerate the trend – nearly half of new investors said they accessed their account primarily through a mobile app. As FinTechs, how do we create the trust needed to keep new investors in the market and create a fruitful customer experience for them?
The financial industry does a disservice to individual investors if we merely offer tools that focus on making money quickly, an approach that usually backfires. Instead, the surge of interest presents an enormous opportunity for those who want to help more consumers use financial technology to educate them on responsible spending, saving, and investing in order to achieve financial wellness current fintech tools have welcomed individual investors in the door.
Now, it’s time to focus on education and improving their experience going forward. There are several ways those of us in fintech can step up to shape the future of retail investing so that it works better for everyone, starting with the following areas.
Equal access to financial wellness education
Financial health should be available to everyone — but today, not everyone has the educational resources to achieve it. One study shows that only 3.9% of students from low-income schools were required to take a personal finance class. What they aren’t learning in school or from family members, fintech companies can provide on their platforms.
The companies should move from solely offering financial services to a more responsible model of education, advice, and prescriptive choices to help consumers develop better habits and make wiser financial decisions. Not only can they empower consumers and bridge historical wealth divides, but they can also stimulate growth by opening up new consumer segments.
Just as we’ve come to expect that our fitness routines are tailored to our individual bodies, we’re also ready for finance tools that go beyond one-size-fits-all solutions. But only six percent of financial institutions say they’re using the kind of technology that allows them to deliver a deeply personalized experience. Fintech tools need to reflect that financial success looks different for each of us.
For one consumer, it may mean providing guidance on how to pay off student loans early; for another, it may mean prescriptive actions that enable them to stick to a budget for the first time; for a third, it could look like prioritizing environmental, social and governance (ESG) investments, so that her portfolio aligns with her political beliefs.
Now, we are seeing financial technology beginning to meet the demands of personalized finance in a substantial and meaningful way.
The rise of AI-Powered Advice
Big-picture advice and predictive guidance used to be a feature of high-end financial advisory firms — a perk only available to those who could afford it. But thanks to rapid advancements in data analytics and artificial intelligence (AI), that kind of holistic advice is now more accessible than ever. AI-driven robo-advisors can parse many different streams of financial information, delivering customized answers to key questions: Is it time to buy a home, or is it smarter to keep renting? Can I afford to take out another student loan?
Intelligent connectivity powered by AI can anticipate consumers’ needs and next steps, making proactive suggestions that guide them along the path to financial wellbeing. Fintech companies can also help consumers identify when their financial picture becomes too complex for a robo-advisor, and help them find a human financial advisor to meet their needs.
Focus on financial mental health
New investors are quickly finding that the market can be overwhelming. That’s not surprising, financial anxiety is common and studies show that financial stress can have an impact on mental health for some.
It’s not enough for fintech companies to give retail investors access; they also must provide the guidance and support that help consumers manage their financial well-being. Educational tools can ensure that consumers are well informed about their options.
Predictive analytics can anticipate consumers’ questions, serving them key information and insights before they ask. Features that emphasize a comprehensive notion of financial well-being, rather than short-term wins and losses, can also help ensure that consumers are keeping their eyes on the bigger picture.
Gamification for good
The surge of gamification apps has done an impressive job making investing as engaging as playing a video game or joining a social media platform.
Much of the current use of gamification emphasizes short-term thinking, but there’s also an opportunity to help consumers think more broadly about their overall financial picture. One example is peer benchmarking, a feature that enables help consumers to see how their financial habits compare to those of friends and fellow consumers.
Gamification can also be used to incentivize making smaller, smarter choices — for example, rewarding saving over making an impulse buy.
The future of fintech is about more than just broadening access to the markets. It’s about making sure more individuals have access to the tools that can help improve their financial well-being—in the ways that suit their own circumstances and needs. The potential to act within their own set of individual priorities, with their long-term financial wellness in mind is much more empowering to a consumer than simply relying on short-term, high-risk investments.