Fintech investment deals in the UK have outpaced those in the US and Europe, according to research released by Robert Walters and carried out by Vacancysoft; nine deals worth over $1 million were made in the UK in Q1 2020 alone, compared to six in the US and four in Europe.
London fintech firms in particular saw nearly as much investment in Q1 2020 ($114 million) as they did for the entirety of 2017, which highlights a rise in significance for the sector in the UK’s capital city.
“Fintechs were not initially seen as direct ‘competition’ to traditional banks – with their products and services differing vastly,” said Tom Chambers, senior manager, technology at Robert Walters’ London office. “However, over the past 12-18 months we’ve seen fintech’s apply for banking licenses which means they can now expand their offering to include overdrafts, guarantee deposits, and the ability to set-up direct debits.
“Perhaps the most drastic change was governments swift action to ‘shake-up’ traditional lending and allow fintech companies to be an official loan provider for the government COVID-19 bailout scheme – introducing fintechs to the masses.
“London has done a stellar job in proving its return on investment when it comes to VC funding – and it is no surprise that the City received 80% of the total fintech funding that comes into Europe.”
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Chambers, however, stressed that due to the unprecedented current circumstances, companies must remain wary of their finances.
“The current climate is like nothing we’ve seen before, and so fintechs should be mindful of their balance books,” he said.
“Whilst confidence for fintech investment has been high before, we can expect VC’s to be cautious throughout the rest of 2020 and unlike before will shy away from those fintechs that are rapidly running out of capital.”
Even if investment in London fintechs maintains the same pace throughout the rest of 2020 as it set in Q1, funding will see a 73% drop.
Regional firms missing out
While fintech in London seems to be booming, the same can’t be said for elsewhere in the country; regional vacancies saw a downturn in 2019 compared to the previous year, with investment being majorly focused on the capital.
In 2018, 45 of the 50 fintech deals worth over $1 million made in the UK were made in London, and in 2019, while the amount of major deals almost doubled (96), only eight (under 10%) were made outside London.
“If the government are serious about levelling up the country to catch up with London, then serious thought needs to be given into how and why London based businesses remain so much more attractive to VCs,” said Ahsan Iqbal, director of technology and business transformation at Robert Walters.
“Work is already being done in Birmingham with HS2, and within Manchester, Leeds and Liverpool to grow the Northern Powerhouse.
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“In the last few years, we have seen regions outside the UK establish their own tech hubs, and as a result are holding onto talent. With the skills now existing in abundance in the regions, attention needs to turn towards getting fintechs to move or start-up here.”
AI to aid sector through COVID-19
While it may be difficult to view the study’s findings as anything more than an anomaly produced by the currently unpredictable times, it has been forecast that AI-driven lenders could aid fintech firms through the pandemic.
“As normal restrictions on lending are being waived during COVID-19 to enable companies to ride out the crisis, artificial intelligence will play a key part in enabling the financial services sector to provide simultaneous support to thousands of businesses – at a rate far greater than the capacity of their current underwriting teams,” said Ben Litvinoff, business director at Robert Walters.
“As a result, AI-driven fintech lenders will be the biggest ‘winners’.”
