London has a “secret sauce” that keeps it ahead of the US and China. That’s according to Alastair Lukies, non-executive chairman of Innovate Finance and the Prime Minister’s business ambassador for fintech.
“There’s a difference between disruptive fintech and enabling fintech. If you look at Silicon Valley, it will try and build technology that shows little respect for incumbency," he says. "They will create technologies which will try and wipe away traditional financial services. It’s the same in China, where you see firms like Alibaba grow to an enormous scale.”
The UK, Lukies, believes, has a culture centred around the latter. “Think of Mastercard and Visa, they were built through the collaboration of many banks. That, for me, is where the real-term sustainable value is in fintech and where our secret sauce is as a nation.”
Lukies doesn’t believe London is going to see a “Google, Apple or Amazon”, but in the form of FundingCircle, TransferWise and Worldpay, it has several medium-sized and successful companies. “I’d love to see us create a sort of Mittlestadt model for fintech,” says Lukies. “An ecosystem where we have a thousand companies with a thousand employees.”
In 2018, deals for Worldpay ($12.9bn), IRIS Software ($1.8bn), ETF Securities ($611m) and Revolut ($250m) saw UK-based fintechs raise nearly 10 times the amount gathered by German rivals and 20 times more than that raised by French firms, according to a KPMG study.
London hasn’t been given enough credit, says Lukies, for the “reinvention” of finance around fintech. Yet setting the standards in the industry is something buried in “centuries of history” in The City. “Many of the standards that have been set in the financial services industry today started out in the guilds in the City of London.”
There is, he admits, an unfair advantage in geographical proximity. "If you go to Canary Wharf in the morning you can meet with an international bank, see the Canary Wharf Group and chat about basing yourself there. Then you can travel to the City to visit the London Stock Exchange and turn up in Shoreditch to get your snazzy design stuff done. On the way to Heathrow you can visit Battersea park and tech giants. You can get all of that done in a day."
“In the US it’s the complete opposite. You have Silicon Valley doing disruptive tech, New York the centre of financial services and Washington trying to regulate both. You have 50 different regulators in one country.”
Lukies saves praise for the the UK's financial services watchdog, the Financial Conduct Authority (FCA): “One of the things the general public doesn’t really understand is that the FCA has a dual mandate – for prudential authority and for competition. We have a regulator that is saying ‘if you don’t innovate we’ll make you innovate’ and that is something really positive.”
Despite concerns regarding Brexit and ongoing negotiations, the UK saw $16.1bn in investment in the first half of 2018. 49% of respondents to an ACCA Global survey of financial services firms believed the negotiations posed greater risk than opportunity, while 16% believed the opposite. The figures remain similar when respondents were asked about the industry post-Brexit – 42% expect risk to outweigh opportunity, compared to 23% who have a more bullish view.
“I think you’d be incredibly naïve and ignorant to think that Brexit will not have an impact,” says Lukies. “Maybe it won’t affect final decisions, but it will certainly make people hesitate. The uncertainty had an impact on the growth of momentum in London. I’m not saying that we can’t get that back, and I’ve not seen much in the proposed Brexit departure agreements that could affect UK fintech too much.”
Lukies admits, though, that if the uncertainty around Brexit isn’t resolved soon, a company looking somewhere to base its headquarters might shift focus and land on another European city as a hub, and perhaps only use London as a satellite office. “It’s important that we get some answers pretty soon.”