Britain’s Comparative Advantage in Fintech
British fintech dominates the European market, receiving $3.3 billion in investment during 2018.
When it comes to technology industries, few can outpace the growth of fintech in the last decade. In 2013, global investment totalled $19 billion whilst 2018 alone comprised of $111 billion. However, fintech deals slumped in the first half of 2019 by 29% compared to the same period of 2018, likely driven by a major pullback of investment in China according to a recent Accenture report. Looking at Britain’s place in the fintech marketplace, deal value has almost doubled from the first period of 2018 to equal £2.15 billion in 2019, bucking the global trend. As fintech begins to mature and performance diverges globally, what are the reasons behind the UK’s continued success?
Regulation is an important consideration for start-ups in any industry, however, few face greater regulatory burdens than fintech. Financial start-ups in the UK are regulated by the Financial Conduct Authority (FCA) to ensure they adhere to guidelines protecting consumers. The introduction of the FCA sandbox allows fledgeling start-ups to test their technology in a realistic environment before appropriate legislation has been created. As a result, firms can prove their product or service is both acceptable to the regulatory agency and potentially profitable whilst under the restrictions. The launching of the sandbox in June 2016 was the first of its kind, with seven other countries respective regulatory bodies implementing the system over the last three years. Britain’s position at the forefront of financial technology regulation ensures start-ups can minimise legal costs and maximise innovation.
Availability of talent is a crucial factor in maintaining a comparative advantage. The CEO of Innovate Finance, Charlotte Crosswell notes: “The UK fintech ecosystem has a strong track record of technology, innovation and development – and, unlike in the US, where financial services operates on the East Coast and technology on the West – our geography means that tech and financial services have often been in close proximity.” Britain’s unique position of overlapping finance and tech is most obvious in London with its role as a global financial centre alongside extensive technical talent. 71,000 London-based professional developers are registered on tech portal Stack Overflow, set to grow 22% by 2025. However, financial innovation extends past the capital, with the UK’s second banking centre of Edinburgh also taking advantage of tech and finance in close proximity. The city holds six universities, with the highest proportion of STEM students in the UK, establishing its position for innovation. Scottish fintech SMEs have tripled in number during 2018 whilst growth in financial services has recently surpassed London.
British fintech dominates the European market, receiving $3.3 billion in investment during 2018. In comparison, the second-largest area over the period was Germany with $716 million. Innovative start-ups enjoy advantages of raising capital in the UK with generous investment schemes such as EIS and SEIS. However, fintech firms can also benefit from innovation-focused, adaptable financial regulation. Additionally, the UK boasts cities with extensive talent from both the tech and finance sides. This unique combination of governmental and geographical factors ensures Britain will remain at the forefront of fintech well into the future.