The UK, and London especially, has been under growing pressure from other tech hubs in Europe, which are increasingly seeing a larger inflow of corporate finance due to more welcoming investment and start-up conditions. However, London’s economic clout and profile as one of the world’s leading financial centres has helped drive one particularly dynamic segment – financial technology, or fintech. According to an Accenture report released this week, investments in fintech companies based in the UK and Ireland expanded at double the growth rate of investment in fintech Silicon Valley companies over the 2010-2013 period.
The presence of global banking institutions in London and the subsequent local expertise in financial transactions has been a major driver behind fintech. The other contributing factors have been a rapidly expanding and already mature personal loans, consumer credit, mortgages and pawnbroker business. UK start-ups have focused on revolutionising how people interact with banks and financial organisations, how money transfers are completed and various forms of borrowing and lending on a C2C, B2C and B2B level. This form of innovation is attracting capital especially from the US. For example, March saw high-end online pawnshop Borro receive $112 million from Victory Park Capital, a VC firm headquartered in Chicago. The UK-based firm claims to be the first web-based pawnshop in the world.
The number of fintech investments in the UK and Ireland in 2013 increased to 32 deals worth $265 million, which was up from nine deals worth $53 million in 2010, according to the Accenture report. By comparison, Silicon Valley in 2013 saw 77 deals worth about $950 million, up from 40 deals worth about $347 million in 2010. This is in the context of global investment in fintech that has risen from around $930 million in 2008 to near $3.0 billion in 2013. Although as a share of total investments in fintech the UK and Ireland remain relatively small by comparison, rapid growth is demonstrating the belief and high potential of local start-ups on the ground. UK fintech start-ups began to see some strong investments recently including London-based Powa Technologies, which offers a mobile payment app and raised $76 million in August 2013, and World-Remit, a start-up that focuses on international money transfers that raised $40 million.
Although small by comparison to the huge US market, the UK and Ireland fintech investment scene is by far the most dominant in Europe, it is unlikely to be challenged in the medium term as London’s financial superiority continues to expand, driven by fiscal inflows from the west and east. However, fintech firms also represent risky capital, with UK state figures from 2010-2011 suggesting that fintech start-ups are twice as likely to face bankruptcy than other types of UK-based start-ups. However, it is clear that, investors are willing to take the risk.
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