How Have Fintechs Sparked a Revolution in the UK Banking Ecosystem?
A collaboration between the HM Treasury, the Department for International Trade, and Innovate Finance culminated in publication of the UK Fintech State of the Nation report in April 2019. In it, the UK Government outlined the positive impact of emerging technologies on the financial services sector, highlighting the UK’s potential to maintain its position as a global leader in the fintech sector.
John Glen MP, then Economic Secretary to the Treasury, expressed his pride at the UK being recognized as the best place in the world to start a fintech firm. Glen pledged his commitment to ensuring this remained the case. He explained that the foundation of the country’s economic success lies in its leading financial services sector, combined with a strong public appetite for novel financial services and products, and a regulatory system that backs invention.
Fintech as an Agent of Change
Advancements in the financial services sector have provided UK businesses and consumers with access to an abundance of new solutions. Fintech has driven significant, far-reaching change throughout the UK banking industry, from the latest breakthroughs in insurance to the crypto-asset space.
From implementation of AI across the financial services industry to open banking platforms, the fintech sector is playing an increasingly important role. It encourages innovation and flexibility throughout the UK economy.
Why the UK?
Building on London’s reputation as a world-leading financial services hub, the UK has established itself as a global fintech leader. In 2018, investors ploughed more money into UK fintechs than those based in any other country in Europe. The UK benefits from deep pools of tech and entrepreneurial talent; progressive policymakers and regulators; professional and capital expertise; and vibrant startups that drive the digital economy.
At the time of the UK Fintech State of the Nation’s publications, its authors reported that were more than 1,600 fintech firms in the UK, estimating that this figure would more than double by 2030. The UK’s fintech adoption rate stood at forty-two percent, compared with a 33 percent global average. With 76,500 people working in the UK’s fintech sector as of April 2019, the report predicted that that figure would rise to over 105,000 by 2030.
Disrupting Traditional Financial Services
Fintech has changed the future of banking in a variety of ways in the UK. Valued at around $127.66 billion in 2018 and expected to grow to over $309 billion this year, the global fintech market has triggered growth in numerous ancillary financial spheres, including mortgages, blockchain, and neo-banks. Fully online platforms such as Stash and Pockit are challenging services, products, and user experiences provided by traditional banks and other financial service providers.
Ann Sraders writes for the financial news site TheStreet. She indicates that fintech has played an integral role in many of the latest technological developments, from apps like PayPal and Venmo to blockchain technologies like cryptocurrency. Sraders points out that by combining financial services or applications with the latest technological developments, fintech has helped businesses, particularly new startups, to disrupt the industry and provide improved financial services to individuals and businesses alike.
Enhancing Traditional Financial Services
Accelerated growth of the fintech sector is a double-edged sword for the financial services industry. On the one hand, fintech paves the way for banks to enhance their service offerings, enabling institutions to utilize tools like chatbots to improve the customer experience; machine learning to protect customers against fraud; and mobile apps to provide customers with a real-time view of their bank accounts, wherever they are in the world, at any time of the day or night.
On the other hand, up-and-coming fintech startups are disrupting the traditional financial services sector from every angle, providing stiff competition for traditional banks, and threatening the very existence of even some of the best-known financial institutions. For example, for three years in a row now, the digital bank Starling has snatched the “Best British Bank” title at the British Bank Awards, comfortably fending off competition from high street powerhouses like Barclays, Nationwide, and Halifax.
Fintech beyond London
According to Deloitte’s grassroots analysis of the UK fintech ecosystem, the UK benefits from a synergy of entrepreneurial minds, investment capital, financial expertise, proactive policymakers, engaged regulators, and technology skills. This creates a perfect storm for the country to maintain its position as a global leader in the financial services sector.
Although London remains a “superhub” of fintech activity, somewhat surprisingly, Deloitte’s report revealed that as many of one-third of UK fintechs were actually based outside of the UK capital. It identified nine additional “high-growth fintech clusters” racing to catch up. Deloitte’s analysis suggested growth in specialist innovation, particularly within the lending sphere.
Fintech’s Contribution to the UK Economy
In 2019, the UK’s financial service industry contributed £132 billion to the domestic economy, representing 6.9 percent of total economic output that year. Even after the significant economic disruption created by Brexit and COVID-19, the UK continues to give a robust performance internationally in the fintech arena, boasting an active market, and large amounts of capital and skill.
However, as other countries seek to grow their fintech offerings and infrastructure, there is always the risk that the UK could be left behind. It is vital to the country to maintain its position. It should also take steps to increase its market share in coming years if it wants to increase its competitiveness and attractiveness to international investors.
