November 25, 2015
‘Where are all our billion-dollar companies?’ This is a conversation that has populated UK entrepreneurial conferences for the best part of the last 15 years. The US has bucket loads – Asia, too – but barring the few notable success stories (James Dyson, Richard Branson and Mike Lynch) the UK has been on the outside looking in.
Initially, the answer seemed obvious. What do the US and, say, China and India have in common? Easy: the three are population monoliths. The UK’s 64 million-strong skeleton crew is a drop in the ocean compared with China’s 1.4 billion, India’s 1.3 billion and the USA’s 319 million populace.
So the problem is scale. If bigger is better, then it’s not the UK’s fault it was formed as a tiny cluster of islands off the cusp of mainland Europe. That’s alright then.
But London financial tech startups point to a different reason: international markets. Turns out success lies in transcending domestic markets and grabbing international players by the nose. It can be argued that the UK businesses with the greatest potential have sprung from this “FinTech” – and most of them are in London.
The UK’s unicorn farm
Fintech produces more billion-dollar-valued startups than any other sector in the UK.
Businesses like international money transfer service Transferwise, mobile payment facilitator Powa Technologies and financial data provider Markit are all based in London, and all valued at $1 billion-plus; in September 2015, peer-to-peer lending service Funding Circle topped the FinTech investor leader board after securing a $150 million deal.
The rest of London’s big-and-getting-bigger FinTech industry is not doing too shabbily either, with a large proportion of its startups and growing businesses valued at tens or even hundreds of millions of pounds.
There’s also a certain degree of inception occurring, with promising FinTech startups turning to other Fintech startups to help herald in the investments. Two such examples are B2B foreign exchange (FX) platform Kwanji and market trading app developer Nous Global Markets, both of which are currently raising funds on two-year-old alternative finance equity crowdfunding platform, SyndicateRoom. The cycle continues.
The result: London is one of the biggest FinTech clusters in the world, in some ways rivaling the States’ mythical Silicon Valley.
And investment in the sector is continuing to climax. In the first nine months of 2015 it had attracted $554 million of venture capital funding compared with $487 million for the whole of 2014, a figure that in 2013 had been hurrahed at reaching $265 million – eight times the amount logged for 2008.
“The UK and Ireland is now the fastest-growing region for FinTech investment,” according to one UK Trade and Investment government paper, citing an Accenture report that reads: “Deal-volume, mostly related to London, has been growing at an annualized rate of 74 percent since 2008, compared with 27 percent globally and 13 percent in Silicon Valley.”
These impressive figures place London at the head of the universal FinTech rush that experienced a global investment growth of 201 percent in 2014, while venture-capital investments across all sectors averaged 63 percent.
“The UK is emerging as the Fintech centre of the world and London is the jewel in the crown of the UK’s FinTech success story,” Eileen Burbidge, venture capitalist, government-appointed Fintech special envoy and new Chair of Tech City UK, told City A.M. “With record levels of investment, access to talent, a growing culture of entrepreneurship and progressive policy makers and regulators, we have all of the right ingredients for success.”
Why Fintech, and Why London?
Many catalysts are responsible for London’s FinTech boom – the UK’s technological infrastructure, incubator programs, the number of migrants sending remittances back home, and so on – but Tech City was the first concerted effort at building Britain’s own Silicon Valley.
East London Tech City expanded organically in the early 2000s, the area attracting small businesses with cheap property – for London. It was so successful that in 2010 Prime Minister David Cameron announced plans to accelerate the growth of the company cluster, and investments from local and national government followed. The movement was gaining traction on the world stage. Big names like Cisco, Facebook, Google and Intel poured money into the project, and the ball hasn’t stopped rolling since.
The creation of Tech City UK enticed entrepreneurs and backers to Silicon Roundabout, where they populated a lively network of flexible office spaces and business clubs. Nearby hubs like Canary Wharf, traditionally one of the UK’s main financial centers, are now also on their way to becoming epicenters of London FinTech.
What’s Next for London FinTech?
It may seem like tempting fate to say it, but London FinTech is only likely to grow over the coming years. In fact, the UK government has already announced plans to create 100,000 new jobs in the sector by 2020, building on the 135,000 that exist currently.
One of the paths forward is paved, as is so often the case, with collaboration. Collaboration means more ideas, more reach and more resources. Where banks and other traditional financing solutions may be feeling left behind as people increasingly turn to alternatives, they should instead see opportunity to deliver better services for clients – mitigating risks, reducing costs and stabilizing the greater financial system.
The credit crunch dampened enthusiasm for working in traditional finance, so many aspiring graduates turned to alternatives and entrepreneurship. But there are benefits to both: while hip new startups are light on their feet, established companies have experience and long-standing client networks to bring to the table.
It’s time to pull finance into the digital age.
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