It’s really not so long ago that what we now refer to as “FinTech” was pretty much exclusively the province of a handful of big banks, their payment processing partners and associated businesses. Aside from a few forward-thinking tech upstarts like PayPal, any innovations in fields such as payment and transaction technologies tended to be driven from within the monolithic – and technologically conservative – financial services industry.
In 2016, it’s a different playing field. Consumers and businesses want financial technology that’s flexible, straightforward and works for them. While traditional market players still have their place – and account for around 82% of revenue in the sector – FinTech innovation is increasingly being driven by emerging, more agile start-ups who can bring both technological savvy, and disruptive new ideas to the sector.
The rise of FinTech is borne out by ongoing massive global investment in what is clearly not yet a fully mature sector. The UK is currently the world leader in FinTech – with more people working in the sector than in Australia, Germany, Hong Kong and Singapore combined – and the British market as a whole represents an estimated £20 billion in annual revenue.
The UK’s current dominance in the market is at least partly due to market opportunity. Businesses have access to a large and relatively sophisticated consumer market, which embraces technology and is open to innovation. London’s position as a global hub of financial institutions also plays its part – the UK’s FinTech market is largely concentrated in the capital, although the sector is seeing growth in other sites including Manchester, Edinburgh and Leeds.
Access to investment is key to the UK’s leading position in FinTech. Venture capital investment in the sector hit a massive £2.46 billion in 2015, an increase of 70% on the previous year. The availability of capital is significantly ahead of the rest of Europe, with half of London’s tech investment coming from within the UK – although it’s worth noting that the United States accounts for 29% of investment, with the remainder sourced from both within and outside the EU.
Investment in FinTech – whether that’s from more traditional venture capitalists, angel investors or a crowdfunding platform – is increasingly focused on ideas and innovation. It’s a massively competitive market, and start-ups need to ensure their idea really stands out if they want to attract the attention of investors. Those that do can certainly reap the rewards; witness the fundraising success of emerging players, such as Atom Bank, which successfully raised £135 million, or challenger bank Mondo, which took just 96 seconds to crowdfund its first £1 million.
Of course, ideas are all well and good; you also need the tech expertise to deliver on your grand promises. Perhaps unsurprisingly, 45% of jobs within FinTech businesses are IT roles: analysts, developers, designers and engineers. Hiring the right team is absolutely vital; however, attracting the top talent in this field isn’t always as easy as it might be.
In the current IT recruitment marketplace, there’s no shortage of candidates eager to break into the FinTech sector; however, sifting through this surplus to find the exceptional dev talent required to meet stringent finance/banking standards is notoriously difficult.
Some FinTech companies are exploring alternative approaches to recruitment – such as payment processor Stripe, which is currently experimenting with sourcing already established teams of software engineers, who are taken through the hiring process together, rather than individually. This approach no doubt has its benefits, but I have doubts over the sustainability of rolling this model out more widely.
With the EU membership referendum due to take place on 23rd June 2016, there’s a question of how this might affect the talent available to businesses in the UK FinTech sector. With current EU-wide labour mobility policies, the nation’s technology sector as a whole undoubtedly benefits from European workers – particularly those from Eastern Europe where schools and universities place a strong emphasis on science and mathematics.
On balance, there’s at least a possibility that tougher UK immigration and visa rules in the event of an exit vote could drive that EU talent to competing centres, such as Berlin, widening the tech skills gap in London and across the UK. So the question becomes: is the UK FinTech sector strong enough to survive – or possibly even thrive – in a post-Brexit Britain?
In Part II of this blog, I’ll be continuing the Brexit discussion by analysing the possible impact a ‘leave’ vote might have on the FinTech sector, and IT recruitment in general. Of course, I’d love to get your opinions on this issue, so please drop us a line.