As the clock starts ticking closer and closer toward the inevitable Brexit, questions are being raised about London’s position as a global fintech hub.
Simon Briskman, partner at the international law firm, Fieldfisher was of the opinion that funding was growing at a healthy rate and that high-growth companies continued to innovate, in particular, in the fields of automation and artificial intelligence (AI) solutions, trading platforms, software-as-a-service (SaaS), and regulatory technology (regtech).
He was commenting on the biggest issues threatening London’s global fintech hub status, in conjunction with the London Fintech Week, ongoing till July 13th.
The fears have been that talent and funding will leave the UK once the divorce happens for good.
A 2017 study by Early Metrics, a rating agency for startups and SMEs, which surveyed 1,500 startups concluded that even amidst the uncertainty, the UK’s positioning as a gateway between the US and Europe, as well as demonstrated expertise in fintech ventures, gave it the edge it needed to remain a successful fintech hub.
UK fintech firms were shown to have attracted a total of £1.34 billion in venture capital investment in 2017, out of which London alone accounted for over 90%.
The continued availability of talent might be another matter. London’s fintech sector currently employs a workforce of about 76,500 people.
This number is expected to balloon to 100,000 by 2030. Since 42% of this workforce is drawn from outside the UK, UK remains particularly susceptible to any changes in laws which will affect worker migration.
Transitioning from the old to the new
Notwithstanding talent availability, London’s relevance as a fintech hub also depends on whether it is able to foster the transition of traditional financial institutions to more disruptive fintech services.
Banks are already seeing the need to transition, and intend to partnering with fintech firms to harness change, yet a much sturdier bridge needs to close the gap between the two.
While financial institutions need to understand to new technologies in order to get on board, fintech innovation often requires funding to happen ahead of time.
“New products and services are generally coming from the SME/high-growth sector, fuelled by fintech entrepreneurs. What is difficult for these smaller companies is to survive the push from concept to product, then product to sales and revenue, and then through to continued investment in their product and product diversification,” Briskman notes.
“Companies need to seek funding at each stage of their growth. Often, this means encouraging a strategic stake or even a buy-out from a larger institution,” he further commented.
Depending on how these collaborations happen, traditional financial institutions could either be the best guardians of the burgeoning fintech galaxy, or they could be the ones slowing down the process.
The UK government has also ramped up initiatives. It had earlier this year launched the Fintech Sector Strategy, which launched a cryptoassets task force between the Bank of England, HM Treasury and Financial Conduct Authority. The task force aims to bring about the use of blockchain in the financial services.
Meanwhile the £2.5 bil Patient Capital Fund it launched in June will enable high-growth companies long-term access to funds. This includes fintech firms.
Ultimately as long as the UK is able to keep a steady flow of incoming investments into fintech, and foster a better dialogue between the more traditional outlets and fintech firms, it should be able to formulate an ecosystem that fintech firms can thrive in for all time.
That being said, this formula also needs to change as fintech progresses on, and Brexit becomes not so much a notion to be feared as a fact to be settled in.
Featured Image Credit: London Finance Commission
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