By Matthew P.
From digital bank Revolut to Money Transfer group Wise PLC and payments company Checkout, London is Europe’s fintech champion and plans to hold its crown despite the effects of Brexit and declining investment.
“Before Brexit, the UK was a great place” for the financial technology industry, Revolut’s head of government affairs, Adam Gagen, told UK Fintech Week Ending Friday.
He attributed this to ” fantastic regulation … great talent ” and 300-400 million customers who were directly accessible throughout Europe.
Britain’s departure from the EU without an EU-London agreement on financial services has made access to the giant market and talent difficult.
The UK’s Chancellor of the exchequer, Andrew Griffith stressed during Fintech week that the sector is “vital to the economy”.
Revolut, which made its first annual profit in 2021, has an EU banking license and is aiming for the same for the UK, which would allow it to operate at a similar level to the continent.
“The UK is probably still one of the best places in the world to start and grow a fintech,” Gagen said.
“I think one thing we probably need to do more work on in the UK is to find a way to get better access to regulation abroad through post-Brexit bilateral agreements,” he added.
The fintech sector has recently been rocked by the bankruptcy of Silicon Valley Bank in the US and the global economic turmoil, which has dried up investments and affected the valuations of companies.
The UK saw capital injections into its fintechs drop by 56 per cent last year to just over US$17 billion.
This was stronger than a global drop of 31 per cent to around US$164 billion, according to a study by accounting firm KPMG.
“Despite the decline in the total number of UK transactions, the country remains the center of European fintech investment,” the report said.
In terms of venture capital, or financing of young companies, the UK sector attracted US$11 billion last year, after only the US with US$33 billion and before India with US$6.3 billion, according to Dealroom.
“While other European markets may have growing fintech sectors, it is difficult to compete with London for the top spot given its established financial ecosystem and history of innovation and technological advancement,” EY fintech expert Anita Kimber told AFP.
The UK has 2,500 fintech companies, two-thirds of which are based in London.
“From around 2012-2014 you see this explosive growth in fintech, but at the same time you also see political support for the regulators to support innovation and more competition,” said Peter Cunnane of Innovate Finance.
The UK rose to the top, at least in Europe, thanks to its pioneering role in innovative banking.
This was in terms of testing the technology and promoting “open banking”, giving the customer more control over managing their finances online.
“We have to recognize that this was a historical force. How do we keep that power in the future? That’s the challenge now, ” said Gagen.
The UK and Singapore announced an agreement in november to remove barriers to fintech, and further benefits could be included in London’s post-Brexit agreement with the EU on financial services.
To stay ahead, London also needs to stay involved in regulatory changes, especially regarding the rapid developments in the field of artificial intelligence – and hold on to fintech companies that are tempted to launch IPOs on Wall Street.
The UK financial regulator has played its part, easing the rules on the amount of shares fintechs must make available to the public so that founders have more control.
And the government recently launched the Center for Finance, Innovation and Technology, in partnership with the London financial district “City”, which aims to further develop the UK fintech industry.
Amid the UK cost of living crisis, while inflation remains high, “people are shopping around, trying to use fintech apps to find better ways” to save money, CFIT Chair Charlotte Crosswell told AFP.
