The Jewel in the Crown: Where Next for UK Fintech?

As UK financial technology companies meet in London to discuss the future of their sector, George Rogers offers his perspective on the future of UK financial technology.

This year’s Fintech Week London is expected to be a high energy affair with participants arriving excited after years of growth for the sector dubbed “the jewel in the crown” of UK technology. However, the lasting ripples from recent tech layoffs and declining fintech valuations globally will weigh on the minds of attendees and has, in turn, impacted the near term outlook for the sector.

As key players in UK financial technology meet in London this week to discuss the future, the sector faces many challenges ahead, but two are of the utmost importance. One is the question of how to protect the UK’s position as a European fintech superpower amid a challenging macro environment. The other is to head-on tackle the sector’s issues with funding as it increasingly relies on foreign investment.

From Monzo to Starling, the UK has built a long list of impressive fintech firms these past few years. Last year, $102bn was invested globally in fintech with over $11.6bn of this funding going to British firms. High growth and world-beating, UK companies received more investment than any country bar the US and fintech was the best performing UK technology sector for investment.

However, the economic picture is dimming – global interest rates are going up, economic growth is predicted to stagnate, and consumer spending is expected to drop. This is being felt across the sector with fintech fundraising in the second quarter of this year down 31% year-on-year globally. Worryingly, as a result of budget’s tightening, we are seeing a number of high profile firms making personnel cuts both globally and in the UK in order to future-proof their businesses. If we are to protect UK tech expertise and sustain our role as a fintech leader, Britain will need to do as much as possible to ensure talent is redistributed and stays on our shores amid a global war for talent.

Getting the right talent in place and keeping those with fintech expertise isn’t just a matter for 2022. While it is essential for the near term performance of the sector, our long term strategic vision of building the best breeding ground for future unicorns means we need the right human capital in place to maintain our competitiveness over the next 10 years and beyond. This also means creating a more diverse pool of fintech founders with access to long-term capital. A recent report found that women fintech founders in the UK receive 9% of all capital, and just 3% of venture capital funding goes to all-female teams. Founders from Black, South Asian, East Asian and Middle Eastern backgrounds receive 1.7% of VC investment in total.

Clearly, there is a huge amount to do in this area to ensure we have the right talent and pipeline of homegrown future fintech entrepreneurs. With the City Minister John Glen, a well-respected advocate of UK fintech, leaving office last week, a change of leader will perhaps be an opportunity to take a step forwards and address these issues rather than see delays to positive rule-making.

On that front, whilst progress has been made in bringing British investors into the sector, more needs to be done in the years ahead to support homegrown fintechs. Overseas investors made up 75% of the total invested in UK tech start-ups in 2021, with the majority coming from the US. To address this challenge, UK pension funds could be allowed to invest in high growth tech start-ups so that UK financial technology firms are supported by a wider pool of British investors as they scale.

For UK fintech, it’s important to remember that past performance won’t dictate future success. In focusing on our success stories and past winners, perhaps we are missing the point that there are a number of structural barriers that need to be challenged to deliver the long term success of the sector. The day of the down round for fintechs might be happening today, but it shouldn’t darken the long term outlook for the sector.

George Rogers is a graduate of the University of Birmingham and works with a number of UK fintechs. He is a Young Fabian member and writes here in a personal capacity. George tweets at @GeorgeRogers97.

Do you like this post?