London is leading the way in the European fintech scene and has already become a global fintech hotspot. According to recent figures from Innovate Finance, the British fintech sector employs 135,000 people, which is more than Silicon Valley or New York and the sector received 42 per cent of all European fintech investment last year.
The rapid growth of fintech companies in the UK also created increased wealth and innovation. Neighbourhoods such as Shoreditch, Old Street and King’s Cross underwent a complete overhaul as fintech firms took up residence there.
The fintech sector, of which payments and lending make up the majority share, is crucial to London’s future as the financial epicenter of Europe. But what is it specifically that makes London such a solid fintech ecosystem? And what lessons can we learn in Australia?
- The history and geographical position
London is considered the financial center of Europe, with a high concentration of banks and financial institutions as well as a favorable investment climate. In addition, its geographic position allows it to act as a trade hub between East and West and also naturally enforces its leadership position in the world of finance.
- The ongoing impact of the GFC
London was not immune to the severe impact of the Global Financial Crisis. The negative economic outlook led to mistrust in traditional financial institutions, which in turn, created an environment ripe for disruption.
The lack of trust, demand for transparent services and rapid technological developments led to the creation of innovative services such as P2P and online lending. These innovations solidified London’s position as the leader of the fintech revolution.
- Availability of talent
The financial crisis left many young skilled employees unemployed and it also significantly changed their opinion of traditional financial institutions. Pre-crisis, top ranking university graduates would line up for a career with major bank in the city. Now they seek out opportunities in vibrant and dynamic working environments with companies that are disrupting and innovating industries.
- Government engagement
The UK government quickly realised the potential of the rapidly emerging fintech sector and proactively reached out to relevant stakeholders to discuss opportunities and challenges. The British government also actively promotes the entrepreneurial and startup climate and has enacted a number of schemes and measures including, The Enterprise Investment Scheme and the Seed Enterprise Investment Scheme (SEIS).
We are yet to see similar schemes in Australia however, discussions about our policy settings are happening and the Australian government has a renewed focus on innovation and entrepreneurship. In particular, Wyatt Roy and Ed Husic are both focused on the policy frameworks that will boost Australia’s startup ecosystem.
And today David Coleman, Federal Member for Banks, spoke to the Fintech Venture Capital and Corporate Innovation event (part of Startup Week Sydney), about the need to abolish capital gains tax for startups.
- Regulatory framework
Aside from stimulatory measures, the UK government has imposed regulation to professionalise the fintech sector. For example, as of April 2014, the Financial Conduct Authority (FCA) installed a license for P2P platforms. And in 2016, the Bank Referral Scheme will also go into effect. This law requires major British banks to actively refer SME clients, of which they were not able to assist in their credit application, to alternative finance providers to stimulate competition and significantly increase awareness of alternative finance solutions.
- Presence of accelerators and coworking spaces
There are multiple accelerator programs that are supported by major investors such as Level39, Startupbootcamp, Accenture’s Fintech Innovation Lab and Barclays Accelerator in the UK. As major banks are increasingly becoming aware that fintech is the future, their investment in startup-accelerators has increased.
Australia has also become a major adopter of accelerators. In fact there are currently 430 accelerators and coworking spaces in this country, a number of which are dedicated to the fintech industry.
While Australia still has a long way to go to rival the UK’s fintech industry (some say Aussie fintech is five to seven years behind), recent developments have put us on course to drive a thriving startup ecosystem of which, fintech has assumed a prime position.
Originally published November 2 2015 , updated April 26 2018