Why London remains the global fintech capital
Uncertainty from the on...
Rodney Bain, Co-Founder and Managing Director of APEXX Global, breaks down why London remains the fintech capital of the world.
Uncertainty from the ongoing Brexit negotiations, global trade tensions and now coronavirus have fuelled a sense of caution towards the UK’s economy. It’s true, we have seen shifts in investing trends and some industries have suffered. But the picture is not as bleak as it might appear – in fact, entrepreneurs and investors have reason to be upbeat and optimistic, especially about the fintech sector.
London’s continued dominance
Data recently released by KPMG found that British fintech companies attracted over £38.4bn of investments in 2019, which was an increase of 91 percent from 2018. Across Europe, the UK accounted for half of the top 10 deals and currently holds pole position as the top destination for European fintech investment, second only to the US globally.
Critics might claim that London’s fintech scene is being overtaken by other hubs such as Singapore, Zurich or cities in the US, but there is no denying its continued place as a global leader in the sector. The US, for example, has made huge attempts to build its industry, but it continues to lag behind London in terms of direct investment. The epicentre of the UK’s fintech sector remains firmly positioned in Silicon Roundabout, attracting a wealth of emergent and growing start-ups. There are of course other hubs such as Leeds, Manchester and Edinburgh, but the UK has created an environment for fintechs that has proved much more efficient than other regions. Pair that with London’s history with financial services and it’s a perfect enabling environment for growth and innovation.
This ‘centralised’ hub provides a fertile ground for knowledge sharing, tech cross-pollination and partnerships. The beauty of the Roundabout is that nimble and disruptive start-ups can find a home next to tech behemoths such as Google – what’s interesting, is that both want to be associated with the other. It’s exciting to see such an intertwined combination of global tech players and agile fintechs.
Challenges facing fintech entrepreneurs
Yes, London is thriving as a centre of innovation and originality, but challenges do exist. While I challenge the naysayers, who think that Brexit will halt future innovation and startup growth, it is true that financial services are inherently an international sector. It’s my hope that Europe continues to collaborate and partner with Silicon Roundabout. A lot of fintechs are now faced with hard decisions, for example, whether to register in the Europe or UK for financial and electronic institutions licenses.
In our experience, attracting talent is actually getting easier rather than harder. Today’s talented highflyers are looking for careers that offer creativity, originality and autonomy. A few years ago, graduates would leave university looking for a job at a law firm, investment bank or hedge fund. These days, they are also looking for a community environment, with your employer becoming more like a family than a corporation. Increasingly young people are even open to taking lower salaries for a job that is more personally fulfilling. It goes without saying that London is an expensive place to be and you still need to pay to get the brightest minds, but we see this as an investment in your business and future growth.
In recent years, the Venture Capital pool has got larger and larger, and it will only continue to grow. Valuations are fundamental and will ultimately have significant implications. Historically, entrepreneurs have been focused on growth over profits, shouldering the high cost of customer acquisition. But you only have to look at Uber or WeWork to see that growth is not enough. Entrepreneurs must seek out revenue and find new ways to monetise and to demonstrate a commitment to profit generation.
Key to attracting investors is establishing and building the right founding team. You need different skills and personalities that can complement each other, challenge each other and ultimately balance out. Critical to this is getting on with each other from both a personal and professional perspective – at the very least because you spend so much time together! Don’t be precious with equity – raise money whenever you have the chance to and always be ambitious. You never know when you might need it for a rainy day.
Entrepreneurs have always faced challenges and it’s the resilience and grit that sets the most successful start-ups apart from the rest. As a hub, there is no better place for fast-developing fintechs, ripe to benefit from the network of expertise and talent that can be found at Silicon Roundabout. The macro-environment may present the appearance of a steep challenge but when I look around, I see investment, innovation and growth.
For more information on all topics for FinTech, please take a look at the latest edition of FinTech magazine.
Robinhood faces $35mn fine from New York DFS
The company’s crypto division was issued with a wrist slap in 2020, following the red flagging of several “matters requiring attention”. Robinhood revealed it had reached a settlement with the New York State Department of Financial Services regarding the issues, which related to “alleged violations” of cybersecurity and anti-money laundering rules.
The news follows on from the announcement earlier this week that the trading platform favoured by armchair investors, which almost broke Wall Street earlier this year, has an expected valuation of $35bn following its IPO.
Critics of the platform say Robinhood encourages “risky behaviour” among inexperienced (armchair) investors. The app has also been criticised for not informing customers that much of its profits are generated by routing their trades to Wall Street firms taking the other side, or so-called "payment for order flow."
Robinhood said last month they expected the DFS fine to be at the $15mn mark, adding it would be “the bottom of the range for our probable loss in this matter”. The $35mn penalty is on top of the record $70mn Robinhood incurred from US financial regulator FINRA in June, for “lax vetting and outages.”
However, the settlement indicates the company’s IPO will go ahead as planned, despite initial concerns the investigation could see the float delayed until later this year.
Robinhood floats imminent
Despite the regulatory hiccups, Robinhood priced its IPO between US$38-US$42 per share, giving the platform the US$35bn valuation and analysts predict the firm’s debut on the Nasdaq could occur as early as next week.
Robinhood democratising investment
Launched in 2013 by Tenev and Bhatt, who were Stanford University roommates, Robinhood’s founders will retain most of the voting rights after the IPO. Bhatt reportedly holds 39% of the voting power of outstanding stock, while Tenev holds 26.2%.
The online brokerage, which came under fire for its handling of the GameStop trading debacle, which saw the platform limit stocks to investors, states its mission is to “democratise” investing and is one of the most highly anticipated IPOs of the year.
Robinhood was valued at $11.7bn in autumn 2020 following a private equity funding drive. The new valuation will mean represent a three-fold increase in the company’s market value in less than 12 months.