At a time of eco­nom­ic uncer­tain­ty, tur­moil and appre­hen­sion in the UK, one sec­tor appears to be buck­ing the trend: Fin­Tech. The UK Fin­Tech indus­try is flour­ish­ing, attract­ing start-up fund­ing into the coun­try and mak­ing Britain an increas­ing­ly attrac­tive place for entre­pre­neurs, tal­ent and investors. How are the star play­ers plan­ning to keep UK Fin­Tech alive fol­low­ing Brex­it? Let’s find out. 

The growth of FinTech

What was once con­sid­ered a nov­el way of man­ag­ing finance, Fin­Tech is now used by mil­lions of peo­ple and busi­ness­es across the world. The rise in online bank­ing and mobile-first plat­forms has cre­at­ed an indus­try expect­ed to be worth $236.14 bil­lion by 2022. But Fin­Tech isn’t any­thing new. 

 

Finan­cial tech­nol­o­gy has been around in var­i­ous forms since the ear­ly 1900s. Over the years, we’ve seen tech­nol­o­gy enable the first ATM in 1967, online bank­ing in 1995 and Pay­Pal in 1998. How­ev­er, it wasn’t until 2008 when Fin­Tech real­ly took off. 

 

The finan­cial cri­sis turned the indus­try on its head. High­ly skilled and expe­ri­enced peo­ple from with­in and out­side the sec­tor lost faith in tra­di­tion­al bank­ing and took an oppor­tu­ni­ty to reimag­ine finance. Tech­nol­o­gy was used to inno­vate bank­ing meth­ods, and chal­lenger banks entered the scenes with fast, safe and com­pet­i­tive services. 

 

In sup­port of this indus­try swerve, open bank­ing was intro­duced in 2015 and enforced in 2018; chang­ing the finan­cial ser­vices land­scape as we knew it and open­ing the indus­try up for all. Investors’ heads turned, and ven­ture cap­i­tal funds poured in, reach­ing a record £2 bil­lion that year. 

 

Through­out this all, the UK has emerged as a leader in the field, estab­lish­ing itself as the Fin­Tech hub of the world and boast­ing more than 1,600 firms, includ­ing names such as Mon­zo, Rev­o­lut, Trans­fer­Wise and Worldpay.

 

Trans­fer­Wise: found­ed 2010, now worth £2.6 bil­lion

Mon­zo: found­ed 2015, now worth £2 bil­lion

Rev­o­lut: found­ed 2015, now worth £1.3 bil­lion

World­pay: found­ed 1989, now worth £43 bil­lion

How FinTech is impacting the UK economy

So what does being the Fin­Tech hub of the world mean for the UK econ­o­my? The suc­cess of Fin­Tech start-ups, scale-ups and uni­corns comes down to three key ingre­di­ents. These are:

1. Capital 

Start-ups require invest­ment, and UK busi­ness­es have proved them­selves favourites when it comes to Fin­Tech fund­ing. More than a third of Euro­pean VC invest­ment has gone to Lon­don Fin­Techs alone, but it’s not just the cap­i­tal that’s see­ing all of the action. Fin­Tech clus­ters have devel­oped in places includ­ing Birm­ing­ham, Cam­bridge, Man­ches­ter and Leeds, bring­ing mon­ey, jobs and world­wide attention. 

2. Technology 

To attract VC invest­ment, start-ups require an inno­v­a­tive idea that will dis­rupt the indus­try. Again, UK Fin­Techs have come out on top for push­ing bound­aries and devel­op­ing tech­nol­o­gy that pro­motes the UK as both the Fin­Tech hub of the world and the tech­nol­o­gy hotspot of the plan­et. In turn, this has attract­ed busi­ness­es and invest­ment from all sec­tors to Britain. 

3. Talent

And final­ly, to win invest­ment and cre­ate tech­nol­o­gy, you require tal­ent. There are cur­rent­ly 76,500 peo­ple work­ing in the UK’s finan­cial tech­nol­o­gy sec­tor, demon­strat­ing that tech tal­ent is rife in the country. 

 

The con­se­quences that flow has been sub­stan­tial for the UK. Invest­ment, jobs and spend­ing have enabled the Fin­Tech sec­tor to con­tribute more than £6 bil­lion to the UK econ­o­my each year. Mean­while, the inno­va­tions and expor­ta­tions to the wider finan­cial ser­vices indus­try gen­er­at­ed more than £132 bil­lion while sup­port­ing a £44 bil­lion trade sur­plus in 2018. 

 

And it gets even bet­ter. UK Fin­Techs have helped re-estab­lish trust in the finance sec­tor, as demon­strat­ed by our record of the high­est con­sumer adop­tion rate in the West. Not only do more peo­ple now have access to finan­cial ser­vices, sup­port and secu­ri­ty, but this growth has cre­at­ed a redis­tri­b­u­tion of wealth with­in the sec­tor, pro­vid­ing ample oppor­tu­ni­ty for start-ups and entre­pre­neurs to succeed. 

What’s next for FinTech?

But it’s not time to rest on our lau­rels just yet. The Fin­Tech land­scape has become increas­ing­ly com­pet­i­tive over recent years, and Brex­it only adds to the com­pli­ca­tions. Cre­at­ing this tech­nol­o­gy is expen­sive, and with the risk of reduced invest­ment and tal­ent enter­ing the UK post-Brex­it, it could be a tur­bu­lent and try­ing time for the industry. 

 

While the government’s Fin­tech Sec­tor Strat­e­gy is enforc­ing a range of mea­sures to main­tain and strength­en FinTech’s con­tri­bu­tion to the UK econ­o­my, remain­ing part of the industry’s suc­cess requires proac­tiv­i­ty. Specifically:

Collaboration

Fol­low­ing the open bank­ing rul­ing in 2016, the UK’s biggest banks have tak­en an active stance in pro­mot­ing and help­ing Fin­Tech start-ups. NatWest’s Fin­Tech accel­er­a­tor is designed to help busi­ness­es of all stages start, scale and suc­ceed, through its six-month ful­ly-fund­ed pro­gram. Like­wise, Bar­clays’ Rise labs sup­port Fin­Techs of any size to access the skills, ser­vices and con­tacts they need to cre­ate new and emerg­ing technology. 

 

Astute own­ers and man­ag­ing direc­tors are tak­ing this oppor­tu­ni­ty to access the right con­nec­tions, knowl­edge and tech­nol­o­gy to scale their busi­ness­es ahead of inter­na­tion­al competitors. 

Investment

Invest­ment is essen­tial for growth, and cur­rent­ly, the UK is per­form­ing well. Last year, the aver­age cap­i­tal invest­ment was more than £20 mil­lion, result­ing in a record year for Fin­Tech fund­ing. How­ev­er, as busi­ness­es mature, invest­ment rounds increase. Those aim­ing for scale-up Fin­Tech fund­ing this year will need to demon­strate big­ger and bet­ter tech­nol­o­gy than any­where else in the world. 

 

Research and devel­op­ment into cryp­to assets, arti­fi­cial intel­li­gence, robot­ics, smart lend­ing, aug­ment­ed real­i­ty and bio­met­ric tech­nolo­gies is, there­fore, essential. 

Talent

The num­ber of Fin­Tech com­pa­nies in the UK is set to exceed 3,200 by 2030, increas­ing the bat­tle for both cus­tomers and employ­ees. There’s no doubt about Brex­it impact­ing the num­ber of Euro­pean work­ers in the coun­try, and with 42% of cur­rent work­ers com­ing from over­seas, this could have sig­nif­i­cant consequences. 

 

To pre­pare for this issue, busi­ness­es are invest­ing in tal­ent now. Cre­at­ing com­pa­ny cul­tures that attract and retain employ­ees through learn­ing and devel­op­ment, world-lead­ing projects and com­pet­i­tive benefits. 

R&D tax relief

Run­ning research projects and invest­ing in tal­ent is cost­ly; quick­ly deplet­ing even Series A fund­ing and leav­ing lit­tle for busi­ness growth. How­ev­er, savvy busi­ness­es are using gov­ern­ment-fund­ed research and devel­op­ment tax relief to help. Research and devel­op­ment tax relief can reim­burse up to 33% of funds spent on advanc­ing tech­nol­o­gy. This allows com­pa­nies to spend more mon­ey on busi­ness growth, mak­ing them a more attrac­tive invest­ment oppor­tu­ni­ty. Last year alone, Mon­zo received £1,242,000 in R&D tax cred­its, and at MPA, we typ­i­cal­ly see aver­age sums of £54,000 being recov­ered per com­pa­ny, per year. 

 

How­ev­er, not every­one in the indus­try is tak­ing advan­tage. In fact, a large pro­por­tion of com­pa­nies are miss­ing out, for rea­sons including:

 

• Being unaware of research and devel­op­ment tax credits;
• Not real­is­ing your Fin­Tech is eli­gi­ble for research and devel­op­ment tax relief;
• Not know­ing how to apply for R&D tax; or
• Not hav­ing the time to apply for research and devel­op­ment funding. 

 

But, all is not lost. If you’ve spent mon­ey on devel­op­ing new process­es, prod­ucts or ser­vices in the past 2–3 years, you still have time to sub­mit a claim and put your busi­ness in a bet­ter finan­cial posi­tion for the year ahead. 

What’s next for you

If you’re in the Fin­Tech indus­try or plan to be, then you have a big task ahead: main­tain­ing the Fin­Tech hub of the world rep­u­ta­tion and con­tin­u­ing to impact the UK econ­o­my pos­i­tive­ly. No mean feat. What can you do now?

 

1. Get your accounts in order to ful­ly under­stand your finan­cial posi­tion and pin­point the time you’ll need to raise more funds over the next five years. 
2. Reclaim owed R&D tax cred­its from the past 2–3 years. 
3. Alter your finan­cial mod­el to account for owed or future research and devel­op­ment tax relief.
4. Get involved with local finan­cial accel­er­a­tors to meet the right peo­ple, investors and talent. 

 

The Fin­Tech boom doesn’t look set to slow down any time soon. How­ev­er, if you sit still, you may get left behind. 

 

How we can help your FinTech business

With so many plates to spin run­ning and scal­ing a Fin­Tech busi­ness, your own finances can be the last thing on your mind. At MPA, we’re ded­i­cat­ed to help­ing your busi­ness grow by access­ing free gov­ern­ment fund­ing such as R&D tax cred­its, that make your start-up fund­ing go fur­ther. With the aim of inno­vat­ing and grow­ing sec­tors such finan­cial ser­vices, research and devel­op­ment tax cred­it can help you to make an even big­ger impact on the UK economy. 

 

Speak to a mem­ber of our R&D team to find out how we can help. 

 

Source: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/801277/UK-fintech-state-of-the-nation.pdf