Team GB: Fintech pulls ahead in the race to level-up outside of London

No longer a London-centric phenomenon, fintech prowess has now reached into all corners of the UK. Birmingham, Manchester and the West Midlands are just a few of the now well-established hubs in England, and cities across Wales, Scotland and Northern Ireland are also fast ascending the ranks.

In the context of the government’s Levelling-Up in the United Kingdom whitepaper, released last week, the fintech industry appears to be ahead of the game. It’s a good sector to have as a front-runner too. The industry is now worth over £11bn to the UK economy and constitutes an important contributor to GDP. It is also unique in being one of the few sectors to emerge from the pandemic stronger, as financial services were digitalised and customers migrated online.

In addition to showcasing the home-grown glories of ‘global Britain’ (second only to Silicon Valley), fintech clusters are succeeding in bringing wealth and jobs to formerly less affluent communities. The industry also still holds huge untapped potential, boasting some of the fastest-growing companies in the country.

According to a recent report: “local authority areas that are home to 100 or more high growth companies have an average [gross value added] per head of population of £138k compared to £22k for local authority areas with less than 100 high-growth companies.”

Ahead of the curve

Fintech’s head-start on the objectives laid out in the whitepaper can, at least in part, be attributed to the groundwork that had been laid over the past year.  

The Treasury-commissioned Kalifa Review – undertaken by Ron Kalifa and published in February last year – outlined a roadmap to fostering fintech development. It advocated liberalising regulatory requirements for new start-ups, establishing ‘growth funds’ to help firms grow independently, and building a network that would support young businesses and encourage greater collaboration.

“It is about building markets for this innovation to grow into,” Kalifa says in the report. “A great product will not succeed without a strong customer base, adequate regulation, access to data, skills and capital.”

According to Stephen Ingledew, Executive Chair of Fintech Scotland, the review has proved a game-changer in terms of stimulating greater collaboration between the regions of the UK.

“Ron galvanised the different regions of the UK to work together, rather than in direct competition,” he says. “It’s been particularly effective in terms of levelling-up: using all parts of the UK to drive innovation and improve economic outcomes.”

Another review, this time by Lord Hill, was released around the same time and recommended a relaxation of London stock market rules to make the UK more competitive in attracting fintech talent. The review – which advocated a reduction in the free float requirements for IPOs and supported dual class share structures – suggested the UK market align more closely to US stock market rules, in a bid to entice more startups and fintechs to IPO in the UK.

It’s been less than a year since the Treasury announced that it would adopt a number of recommendations from within the Hill and the Kalifa reviews, yet looking at the past year’s results, it seems the measures are already paying off.

In 2021 the UK consolidated its position as the second top global destination for fintech investment (behind the US) and the top European hub.

The UK fintech industry leapt forwards with 217 per cent investment growth, according to data from Innovate Finance. In the regions of the UK, outside of London, this figure was even higher, showing 237 per cent growth.

Government-backed industry group Tech Nation adds that now “over 50 per cent of all the companies on [its] growth programmes and competitions hail from outside of London”.

Silicon Glen

Scotland - or ‘Silicon Glen’ - has emerged as a strong fintech hub in recent years. With a tech-steeped history, the region is making strides towards recouping its former glory. Edinburgh is now home to the largest number of high growth companies outside London, according to Beauhurst.

“[Edinburgh’s success] has been a combination of its heritage – with many of the big financial services companies and technology players already established here – and entrepreneurial spirit,” says Ingledew. “Collaboration with local universities has also been integral in developing new ideas and new talent.”

According to Ingledew, open banking, payments, climate finance and ‘reg-tech’ have now emerged as particular areas of speciality in Scotland. Dundee, for one, has strong historical ties to payments innovation, with the concept of the pin-code originating in the area.

Such links continue to hold enough weight that Atlanta-based payments provider NCR – with more than three million ATMs in operation globally – chooses to operate a large innovation centre out of Dundee.

The Silicon Valleys

Wales too, is making waves on the fintech scene. Sarah Williams-Gardener, CEO of Fintech Wales, echoes the importance of the Kalifa review in putting Wales on the map as a centre of fintech excellence and in cultivating a “team GB” attitude towards cross-region collaboration.

“The review highlighted Cardiff as among the top 10 emerging fintech clusters across the UK,” she says. “With good reason. The originators of the comparison platforms are all here in Wales – Go Compare, Confused.com –Wealthify [an investment app] is also a Welsh company, and Starling Bank has its largest office here. We have a very strong fintech ecosystem.”

The key ingredients for developing a fintech cluster are many, but roughly boil down to investment, experience, skills and talent, and national (and global) profile. According to Williams-Gardener, the latter was historically harder to foster, but since the Kalifa review put the regions’ activities on the map, this too has started to level-up.

“It’s also really useful to have a large anchor business in the community to nurture entrepreneurial spirit,” Williams-Gardener adds. “For Cardiff, it was Admiral Group [a 30-year old insurance business with entrepreneurial roots] that has provided a wealth of expertise and inspired a new generation of insur-tech businesses and other fintech start-ups in Cardiff.”

The main challenges facing UK fintech are now funding and adoption. UK investors are generally more risk averse than US investors, and less open to solutions by new players, so domestic investment and adoption are not at the levels they should be.

“While funding nearly doubled in 2021, the majority of private market capital continues to come from outside the country, with UK institutional investors in particular being reticent when it comes to investing in domestic innovation,” Judith Hartley, CEO of British Patient Capital, says.

Leading by example

One way this could be remedied, Ingledew says, is by the UK government leading by example and incorporating British innovation into procurement processes to raise awareness and foster trust.

“Fintechs need to get larger financial institutions – like investment houses, insurers and large banks – interested and into a working collaboration. That’s when you see a real jump in scale,” he says.

This aside, as the anniversary of the Kalifa review approaches, the messages coming from the regions of the UK are clear: progress over the past year has been good, and the outlook is bright. 

The recent whitepaper was received with unanimous positivity; not just for what it means in funding, but also in heralding a new era of awareness about the burgeoning capability of the UK’s regional hubs.

“Levelling-up is where we will finally see recognition that the regions are making strong contributions to the UK’s overall performance,” concludes Williams-Gardener.