8 minute read 23 Jul 2020
girl looking through window

How FinTechs are moving mountains and moving mainstream

Authors
Anita Kimber

EY EMEIA Business Transformation Leader

Digital and innovation leader. Open banking champion. Passionate about facilitating better customer experiences through innovation and creativity. Dedicated to building a better working world.

Shalini Shan

Director, Strategy and Transactions, Financial Services Strategy, Ernst & Young LLP

Professional in Banking and Capital Markets, and FinTech disruption. Dedicated to financial services strategy, policy and commercial due diligence.

Vikram Kotecha

Associate Partner, Strategy and Transactions, Financial Services Strategy, Ernst & Young LLP

Professional in the Financial Services Strategy and commercial diligence team. Focus on FinTech and disruption in banking.

Contributors
8 minute read 23 Jul 2020

At the crossing between the UK’s financial services (FS) and technology industries is a world-leading ecosystem for technology-enabled FS.

When HM Treasury engaged us to benchmark the FinTech landscape in 2016 (UK FinTech: On the Cutting Edge), the FinTech market was nascent and growing; value was already being realized with £6.6b revenue generated within the UK alone. We anticipated that the FinTech sector would be an engine of growth, driving innovation and transformation across the financial services sector.

Fast forward to 2020. We were intrigued to understand whether the potential of FinTechs that we felt in 2016 had transpired in 2020. On the one hand, what we discovered in the period leading up to 2020 and before the COVID-19 pandemic was a positive growth story. We witnessed a growth in capital invested, greater support from policymakers and regulators internationally, improved quality and volume of FinTech talent, and better collaboration amongst FinTechs and financial institutions, all of which offered the opportunity to scale. The impact on the economy remains significant, with revenue generated by FinTechs in the UK nearly doubling to £11b in 2019. On the other hand, we still witnessed more start-ups than scale-ups and recognized opportunity to enhance innovation and fuel growth within the sector.

With this report, our aspiration is to present our research findings and provide insight into leading best practices across influential global markets, with an ambition to challenge policymakers, regulators, investors, banks and even FinTechs themselves, to stimulate greater innovation and inclusion in financial services in the UK.

When it comes to FinTech today, we no longer see clear ‘leaders’ within markets; FinTech globally is being adopted at scale, but the way different markets have fuelled growth highlights differences in attitudes to innovation. We realize that ‘leadership’ in FinTech globally has become more ambiguous, depending on whether investment, talent, and adoption are deemed as the most important criteria. An important question to ask now is how to scale, hence our focus on moving mountains and moving mainstream.

The COVID-19 situation has shone a light on the resilience, robustness and importance of many FinTechs. We have seen some thrive; their sense of purpose and relevance has been critical during the pandemic, observed by the incredible effort and commitment they have put towards supporting consumers and small and medium enterprises (SMEs) through this turbulent period. Yet, we also know it has put significant pressure on many others.

We believe that there is much to learn from our analysis and it is our firm belief that our recommendations, implemented as a whole, have the potential for a far wider reaching impact on UK financial services and the economy. While the full impact of COVID-19 on the sector is yet to be seen, the FinTech industry is expected to remain resilient and with the right support, to thrive.

The analysis, views and recommendations expressed in this report were produced by EY and informed by over 100 interviews held with FinTech firms, investors, trade associations and policymakers. The EY team is grateful to all who contributed their time and made the production of this report possible.

Overview of UK FinTech center

The research in this report shows that the UK is a global leader in FinTech, with a world-class and well-rounded ecosystem. The combination of financial and technical talent is unparalleled, and capital is strong, with nearly £3.6b invested in FinTech in 2019. In policy and infrastructure, the UK has set the global benchmark for policy-led innovation, with key initiatives including the FCA’s regulatory sandbox, open banking and the AI Sector Deal frequently cited as internationally distinctive. And from a demand standpoint, consumers, SMEs, corporates and government are key users of FinTech; more than two-thirds of digitally active consumers now benefit from FinTech services.

Relative to more nascent FinTech ecosystems globally, our hypothesis is that the UK should be better positioned to weather the challenges resulting from the COVID-19 pandemic. FinTech has an important role to play as a catalyst for innovation and inclusion in financial services and should be looking to enhance its role as a growth engine of the economy, as the UK begins its recovery.

The report was commissioned in January 2020 to understand best practices from comparable international markets and develop specific considerations for the next stage of FinTech evolution. The intent of this report is to trigger sustainable innovation that helps to drive the democratization of access to financial services for consumers and SMEs, including those unbanked or underbanked. We also aim to increase the level of choice, competition and national connectivity. Considerations in this report are inspired by our research across eight markets, and how these markets have rapidly progressed their FinTech environments, level of innovation, digital infrastructure and ambitions.

The recommendations, taken holistically, provide the potential for the UK to stimulate greater innovation and inclusion in financial services and should feed into the government announced FinTech sector review headed by Ron Kalifa. The pandemic has showcased the importance of FinTechs’ role within the ecosystem, and as a result the recommendations in this report could be used to accelerate transformation and growth. They are positioned to be pragmatic and achievable as we embark on a period of recovery following the COVID-19 pandemic, supporting growth by ensuring the right access to capital and talent. For example, the focus on FinTech could support a national talent strategy that increases and diversifies the domestic supply of talent, addresses skills gaps and works more closely with academia to attract talent to the sector.

We also address the opportunity across the UK: not just in London, but in vibrant regional clusters, as we look to make the UK, as a whole, the destination of choice for FinTechs. This needs to be underpinned by an integrated national digital agenda, linked to world-leading infrastructure that provides comprehensive, safe and secure access to innovative financial services.

The UK must chart its path for the future at this critical time in its history, creating new jobs, forging new international relationships and defining its role as a leader in technology and data. UK FinTech now has the opportunity to enhance its position as a leading FinTech scale-up environment that develops and nurtures the next cohort of UK-supported, globally leading financial institutions (FIs). This requires us to encourage FinTechs, banks and tech firms to take the next steps to transform financial services and rebuild the UK economy.


Four components of a well-functioning FinTech ecosystem

The strength of a nation’s FinTech ecosystem is dependent on a wide range of attributes and factors. Before profiling an ecosystem, we believe it is important to consider these attributes, and draw conclusions of where the ecosystem excels and/or is challenged.

We believe a well-functioning FinTech ecosystem is built on four core ecosystem attributes:

  1. Talent: the availability of technical, financial services and entrepreneurial talent
  2. Capital: the availability of financial resources for start-ups and scale-ups
  3. Policy: government policy across regulation, tax and sector growth initiatives, including the presence of digital public infrastructure to facilitate the financial services innovation
  4. Demand: end-client demand across consumers, corporates, FIs and government

The figure below highlights how these four attributes interconnect and indentifies the network of broader stakeholders.

The Fntech Ecosystem

Commitment to innovation is clear across UK financial services

Financial services innovation

Six considerations for future UK policy

We have to make sure our FinTech firms can grow healthily and exit healthily, without being snapped up before they have reached their full growth potential.
UK policymaker

Through our analysis of global ecosystems, and their strengths and challenges, a number of considerations emerged. These tangible and pragmatic themes form the basis of recommendations, addressing each of the four core ecosystem attributes, to support the next stage of development in the UK FinTech ecosystem. These recommendations are included below in summary form;

  1. A leading scale-up ecosystem - support FinTechs in scaling, promoting greater competition and wider-reaching innovation in financial services
  2. Globally leading FinTech talent - provide FinTechs with improved access to the world-class talent they need to grow
  3. A network of vibrant national clusters - support development of broad, diverse and unique regional clusters across the country
  4. Targeted approach to inbound and outbound FinTech - make the UK the destination of choice for overseas FinTechs and support UK FinTechs in scaling
  5. Integrated national digital agenda - build an integrated, cross-sector approach to digital, underpinned by world-class public digital infrastructure to accelerate financial services innovation
  6. Deep and diverse sources of demand – raise consumer, SMEs, corporate and government awareness and education to support safe access to innovative services
There is a clear opportunity for politicians, regulators as well as FinTechs and traditional FS firms to continue to drive the UK forward in developing our FinTech ecosystem.
Vikram Kotecha
Associate Partner, Strategy and Transactions, Financial Services Strategy, Ernst & Young LLP

Summary

The UK is a global leader in FinTech, with a world-class and well-rounded ecosystem. FinTech has an important role to play as a catalyst for innovation and inclusion in financial services and should be looking to enhance its role as a growth engine of the economy, as the UK begins its recovery following the COVID-19 pandemic. This report was commissioned to understand best practices from comparable international markets and develop specific considerations for the next stage of FinTech evolution.

About this article

Authors
Anita Kimber

EY EMEIA Business Transformation Leader

Digital and innovation leader. Open banking champion. Passionate about facilitating better customer experiences through innovation and creativity. Dedicated to building a better working world.

Shalini Shan

Director, Strategy and Transactions, Financial Services Strategy, Ernst & Young LLP

Professional in Banking and Capital Markets, and FinTech disruption. Dedicated to financial services strategy, policy and commercial due diligence.

Vikram Kotecha

Associate Partner, Strategy and Transactions, Financial Services Strategy, Ernst & Young LLP

Professional in the Financial Services Strategy and commercial diligence team. Focus on FinTech and disruption in banking.

Contributors