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Investment in UK fintechs expanded by 500 percent over the past five years, eclipsing levels in the US – which recorded 170 percent growth over the same period – and Europe, which recorded a 133 percent increase.
A recent report has also found that UK fintechs received the greatest amount of investment of all European fintechs, pulling in $48bn (£38bn) in 2019.
This uptick is expected to continue, as London-based fintechs generated $114m of investment during Q1 2020—only $34m less than during 2017.
This may be good news for a post-Brexit UK, as the report also noted that over 1,000 EU-based firms are planning to establish their first UK office after Brexit.
“I expect a lot of smaller fintechs will be absorbed or bought up within the 18 months to two year horizon, because they won’t be able to continue independently, and they won’t really get some sort of further rounds of funding if they’re not directly in that in the path of mainstream digitsation,” said James Buckley, vice president and head of Finacle Europe, Infosys.
As the UK leaves the EU’s collaborative network, national governments may create more incentives for local and regional fintech development. While Q1 2020 venture capital deals over $1m fell in the UK and US, Europe saw an uptick in investments, according to the report.
That said, London’s Silicon Roundabout is still expected to become a magnet for investment over the next three to six months. However, Buckley expects the coronavirus-led lack of face-to-face contact to impact the medium-term growth of fintechs.
The report also found that since 2017, technology roles within the UK banking industry have risen 50 percent in Birmingham, Manchester and Leeds, and 23 percent within London.
However, the industry firmly remains London-focused, where tech vacancies on the whole have risen by 31 percent since 2017. Of the 96 fintech investments made in 2019, only eight were put into regional businesses, highlighting a dissonance within the UK.
While this is an improvement over the five regional investments made in 2018, the report suggests that London will remain the UK’s fintech capital for the immediate future, even after Brexit.
“If the government are serious about levelling up the country to catch up with London, then serious thought needs to be given to how and why London-based businesses remain so much more attractive to VC,” Ahsan Iqbal, director of technology (regions) at Robert Walters, said in the report.
Although the report highlighted intense growth in the industry, coronavirus has changed how many financial institutions operate and provide their services. While the UK saw a 73 percent adoption of online banking in 2019, this is expected to increase as a direct result of global lockdown measures.
“There’s a whole fintech ecosystem that sits around digital processes, and those fintechs that are relevant to putting together digital processes are going to benefit enormously in the next 24 months, because they’re going to be in massive demand,” Buckley said.
Additionally, the report suggests that artificial intelligence (AI) and lending-focused firms will be best placed to weather coronavirus’ impact. Sudheesh Nair, CEO of ThoughtSpot, said via email that even with the constant market and technology flux, firms which offer data-led services will likely see increasing marginal gains.
“We don’t anticipate AI growth to slow – it’s a key driver of better outcomes in the financial markets across businesses functions and it can even specifically help frontline workers get answers and better results for customers immediately where it’s most needed,” Nair said.
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