Over the last two decades, we have all experienced the impact that financial technology (fintech) has had upon the delivery of financial services. Our everyday lives have been at the heart of the disruption, as fintech companies have moved from periphery to mainstream. A clear example is traditional banking where internet and mobile banking began the transformation by dispersing the queue at high street branches.

Open banking has since expediated the innovation with aggressive growth driven by high adoption rates and incumbents beginning to invest in and embrace fintech themselves.  These maturing areas of fintech are still aiding long-term transformational shifts, but it is the growing ecosystem of start-ups which continues to enable new markets as well as disrupt the more established ones.

The UK has emerged as one of the leading global fintech hubs, with a thriving ecosystem of around 2,500 fintech companies in Britain, mostly in London, making London the third biggest fintech hub in the world.

The UK has long been at the forefront of financial services. According to The Global City, with nearly 90,000 finance and insurance firms in the UK, London has one of the world’s highest concentrations of financial and professional firms. Clear evidence of the internationality of the UK financial market is the fact that $3.6 trillion of daily foreign exchange trades are transacted in London, more than the next four markets combined (New York, Singapore, Hong Kong and Tokyo). One driver of this has traditionally been the UK’s location, benefiting from a time zone that crosses almost all major markets. However, in the world of technology where location often matters less, London is nonetheless maintaining a leading position in the ecosystem.

According to Deloitte, the UK fintech ecosystem spans 23 sub-segments of solutions but is dominated by WealthTech and payments which account for over half of UK fintech companies. The London listed ecosystem includes companies covering payments, asset management, digital banking, crypto and more.

The UK Government’s ‘Fintech State of Nation’ revealed that there were 1,600 fintech companies in 2019. This number has grown to 2,500 which is a good indication that the UK is on track with its predicted growth rate of doubling the number of fintech companies by 2030.  The size and success of these companies is also consistent. In fact, London is home to London is home to 100 tech unicorns.

UK fintech Investment

High levels of investment in the industry are undoubtedly a driving force behind the strong fintech ecosystem. According to Innovate Finance, UK investment in 2021 reached $11.6 billion, second only to the US and accounting for nearly half of all investment in Europe. This figure includes both VC investment and listings on the London Stock Exchange, such as PensionBee, Wise and LendInvest.

Furthermore, City of London Corporation research found that fintech firms have become the largest source of financial service foreign direct investment (FDI) projects in the UK, accounting for a third of all projects, and demonstrating the UK’s appeal as a world-leading financial service innovation hub. London continues to hold the top spot in attracting foreign investment in financial and professional services, attracting £600m in 2021 across 114 projects – compared to Dubai (104 projects), Singapore (103), New York (54) and Paris (51).

Globally, there were more than 6,000 deals in 2021, and over 700 of those were in the UK, accounting for more than 10% of the total.  Moreover, Innovate Finance identified an upward trend in the size of these deals. In 2021, 31 of the approximately 700 deals were identified as ‘mega’ deals (deals over $100 million), of which the majority were over $200 million. The three largest were Revolut’s $577 million funding round, Monzo’s $374 million and checkout.com’s $333 million round. By comparison, in 2020, only nine mega deals took place.

Public offering highlights from 2021 included PensionBee, a leading online pension provider, which listed in April 2021 raising almost £60 million at a market value on admission of £365 million. At the time of admission, PensionBee had £1.65 billion assets under administration. In April 2022, PensionBee transferred to the premium segment of the Main Market, at which time its assets under administration had grown to £2.75 billion. PensionBee’s revenue has grown from £6.3 million in 2020 to £12.8 million in 2021, a 103% year on year increase.

Wise, a global technology company, also began trading in London in 2021. Wise joined London Stock Exchange’s Main Market through a direct listing, the largest direct listing of in the London Stock Exchange’s history.

UK fintech outside of London

The strength of the UK fintech market is not confined to London. In fact, Deloitte, who led (alongside Tech Nation) on the National Connectivity Chapter of the Kalifa Review, found 25 locations were clusters of fintechs (10 high growth areas, London Superhub, three established and six emerging areas).

The established clusters are the Pennines (including Manchester and Leeds), Scotland (including Edinburgh and Glasgow) and Birmingham. The six emerging are Bristol and Bath, Cambridge, Newcastle and Durham, Northern Ireland, Reading and West of London, and Wales. Each cluster has developed its own specialisms in terms of stage of company and/or fintech sub-segment. For example, the established clusters account for 45% of scaleups outside of London. Taking another example, Reading is home to Microsoft, Vodafone and

Huawei UK HQ. There is also a long-standing presence of outsourcing finance operations and data centres in the city, establishing Reading as a home for fintechs focussed on simplification of SME business operations.

Furthermore, investment in the fintech industry outside of London is growing faster than within the city.

Global fintech investment grew 183% in 2021 (from 2020), while investment growth in the UK was 217%. Outside London and the South East this was 237%: $696 million investment in 2021 up from $206 million in 2020.

Wealthtech has a strong presence in Scotland, and we also see payment businesses with additional hubs in the Pennines and Scotland.

UK fintech Adoption

Another reason for the strength of the UK’s fintech industry is openness from consumers, policy makers and incumbents to the digital shift in the industry. EY reported that the UK consumer base has one of the highest fintech adoption rates in the world at 71%, versus a global average of 64%. Furthermore, a UK Government study in 2019 found that 56% of traditional financial institutions have put disruption at the heart of their strategy. The commitment to this was highlighted by the fact that 82% of incumbents expected to increase fintech partnerships in the next three-to-five years.

Critically, policymakers have also been on the same page, in fact, they have been helping drive many proactive initiatives to help support and grow the UK fintech ecosystem. A prime example is the FCA’s Sandbox initiatives. The Regulatory Sandbox was launched in 2016 which allows businesses, both authorised and unauthorised firms and including fintechs, to test their innovative products and services in a controlled environment with real customers alongside regulatory expertise. The success is shown by the fact that 92% of firms who use the Regulatory Sandbox have become successfully authorised, 80% of which are still in operation.

The launch of the Kalifa Review in July 2020 demonstrates commitment to the long-term development of the UK fintech sector. The review, published in 2021, made 17 recommendations across five priority areas to help establish comprehensive policy and regulatory strategy to support the industry.

There is also plethora of high-quality initiatives, programmes and communities set up to help the growth of fintech and wider technology companies in the UK. For example, Tech Nation’s fintech programme which is a support network for UK fintech and Insurtech companies ready to scale up. Each cohort is offered insight sessions and networking designed to give members the tools and knowledge they need to scale. Alumni include PrimaryBid, with whom the London Stock Exchange have been in collaboration since 2019 to support retail access to equity offerings.  

Tech Nation have gone one step further by organising, with support from HM Treasury, the fintech Delivery Panel. One initiative of the panel is the fintech Pledge, which sets globally leading standards for the establishment of partnerships between the UK’s largest financial institutions, who can become signatories, and fintech firms. This initiative is a world first and aims to make the UK the prime destination to start and scale a financial services technology firm.  

The UK fintech community also benefits from industry body representation. Innovate Finance is a community of large institutions, start-ups and scale-ups, investors and government bodies, and acts as an independent industry body with the aim to represent and advance the global fintech community in the UK. There is also fintech Week London, fintech Awards London and the fintech Founders group which are also helping supporting this growing industry.

Additionally, the UK tech workforce is strong, in both numbers and skills, an essential factor in driving financial technology development and innovation. Employers have 350,000 software developers to choose from in London, more than any other European city. This workforce can only strengthen with programmes in place to support talent attraction into the UK, for example, the Tech Nation Visa scheme. Through designation by the Home Office, Tech Nation can endorse applications for the Global Talent Visa, allowing individuals from around the world to work in the UKs digital technology sector. Furthermore, targeted approaches on high growth areas, such as fintech, from agencies such as London & Partners, are bringing a significant impact to these verticals.

The UK is at the forefront of financial services technology with an ecosystem of start-ups, incumbents, consumers and regulators who have all embraced innovation. Specialism, talent and openness are the key to the continued success of the fintech industry both in London and wider UK clusters.