The United Kingdom is the Fintech Capital of the World

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In a report published today by HM Treasury, in partnership with EY, the UK declared global domination in the world of Fintech.

The UK has consistently punched above its weight-class when it has come to financial innovation.  The Brits have benefited from elected officials that have been staunch proponents of entrepreneurs. The country possesses a regulatory regime that emphasises competition and a light touch rule-making approach, imperative for a Fintech ecosystem that encourages creative and disruptive firms.

Harriett Baldwin 2Harriet Baldwin, Economic Secretary to the Treasury, opened up the report by declaring;

“FinTech – is fundamentally changing the way financial services firms operate and transforming the way we transfer, borrow, protect and manage our money. Just as the UK is the financial capital of the world, so we are also a leading FinTech capital, with increasing FinTech activity taking place across the financial sector. Small start-ups and innovation within existing large financial services firms is creating jobs and attracting investment. The sector has now grown from its disruptive roots into an industry in its own right – generating £6.6b in revenue in 2015.”

As with most successful economic shifts, the UK started small. Since 2008, the UK has gone from a handful of Fintech firms to an industry that now employs approximately 61,000.  According to their numbers, this is more than NYC Fintech or the entire Fintech sector of Hong Kong, Singapore and Australia combined.

 

 

Bull MarketsThe report runs a comparison between the UK and 6 other regions: California, NYC, Singapore, Hong Kong, Australia and Germany.  They split California and New York because the authors believe their ecosystems operate relatively independently – more than a few people would agree. Criteria for the review included the following categories: Talent, Capital, Policy and Demand.

Regarding those four categories:

  • Talent: The UK currently has a very good pool of talent, with exceptional access to financial expertise, although there are concerns about the future tech talent pipeline; California leads for the depth of talent overall.
  • Capital: The availability of capital in the UK is good for early-stage investment; California is dominant in FinTech investment overall.
  • Policy: The UK has the strongest FinTech policy environment, with the most supportive regulatory regime; policy initiatives in Singapore and Australia are increasingly progressive.
  • Demand: FinTech demand is robust in the UK, driven by London’s strength as the global financial capital; New York also benefits from its position as a global financial centre and currently has the highest rate of consumer adoption

Funding Circle How is your dayEach of these individual criteria was rated and totalled up.  The UK captured the top spot.

Number two, unsurprisingly, was California.  The hotbed of creativity.  Third place was awarded to the Empire state.

The one sector where the UK crushed all competition: Policy.  Elected and appointed officials in the UK are on a mission to make the UK the Fintech Capital of the world.  As for the US, (along with Germany and Hong Kong), policy is viewed as more complex and opaque.  Sorry Yanks.

In Talent, Capital and Demand, the UK received a 2nd or 3rd ranking.

But HM Treasury and EY believe that any cause for celebration should be brief. The UKs leading position will continue to be pressured by other financial capitals as internet finance gains traction worldwide.  The US, the single largest market, still has better access to capital and talent both vital to future Fintech growth.

But without the vital public-private partnership where elected officials embrace financial firms and encourage growth and competition (instead of disparaging it), it can be rather challenging to innovate and succeed. Policy landscapes in the US, Hong Kong and Germany are viewed as more complex, conservative and, in some respects, opaque. In the US, the Government has historically played only a limited role in supporting the industry – more driven by creating barriers instead of clearing the way.

UK Payments iPhone MoneyWhat can the US, and other nations do, to challenge the UK? First you will want to replicate the UK’s regulatory regime for its simplicity, transparency and industry-led approach.

This is a must-read report for policy makers around the world. Too frequently periods of economic success are followed by periods of repose as the legislative class declares victory and moves on to another battle.

EY Recommends the following for the UK to remain dominant:

  • Drive high impact policy initiatives as quickly as possible
  • Build upon the FCAs globally recognized success
  • Facilitate practical support to Fintech firms
  • Support international expansion of UK Fintech firms
  • Strengthen the UKs talent pipeline: more Visas, better STEM programs and more
  • Promote investor led programs to encourage  more growth capital
  • Broaden programs such as EIS and SEIS. Encourage risk taking from investors
  • Boost Fintech consumption

The UK should be applauded for what it has accomplished to date but Fintech is far from mature. Let’s see if policy-makers can keep on track and build upon the exemplary foundation they have created thus far.

The report is embedded below.

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