Martin Heraghty, Regional Director Europe, Paymentology
As an international financial powerhouse, the UK – and in particular London – is a great place for a fintech company to be based – even when times are tough.
Despite the economic fallout of Brexit, soaring inflation and the cost of living crisis, the UK is still ranked as a top destination for fintech investment, second only to the US. In 2022, the country attracted £7.3bn of investment, a sum that was larger than Germany, France, Sweden, and Italy combined. The UK is now home to over 2,500 fintech companies and has one of the highest fintech adoption rates in the world at 71%, compared to a global average of 64%. According to The City of London Corporation fintech firms are also the largest source of financial service foreign direct investment (FDI) projects in the UK’s financial service sector, accounting for one-third of all projects.
There are several obvious reasons for this growth – namely, its favourable regulatory environment, access to capital, and business friendly time zone. But there are also lesser-known, factors behind those figures that help ensure that the UK remains a global powerhouse:
The Role of Issuer Processors as Catalysts
In the UK, the presence of several leading issuer processors has been a critical element in the nation’s rise as a top fintech destination, as they provide a significant infrastructure boost.
Issuer processors play a pivotal role in empowering fintechs and banks by providing the essential technology that underpins their operations. They act as the backbone, establishing a seamless link to payment rails and facilitating the issuance of both physical and virtual payment cards. As a critical enabler within the fintech ecosystem, issuer processors ensure that consumers can enjoy swift and dependable payment experiences. This includes facilitating ATM withdrawals, enabling bank deposits, managing revolving credit lines, and supporting various other vital financial services.
By serving as the “tech behind the fintechs,” issuer processors help these innovative financial technology companies overcome the often burdensome costs associated with developing their platforms. Additionally, they ensure operational reliability and guide them through the complexities of the payments ecosystem. They act as the central link, orchestrating seamless interactions among the issuing bank, the relevant card scheme, and the card bureau to enable smooth and efficient transactions.
This translates to reduced barriers to entry for new fintech players with ready-to-use services and rapid innovation through quick testing and deployment. It has also meant clearer pathways for international expansion, as issuer processors tend to have global operations and knowledge of local jurisdictions. Additionally, issuer processors enable new business models like embedded finance, where financial services are integrated into non-financial firms.
Internationally, issuer processors have also played a significant role in the fintech boom. The advanced and reliable infrastructure they provide has meant fintech startups can quickly launch and scale their innovative financial services without having to build complex systems from scratch.
In APAC, an emerging digital first generation is creating a surge in demand for unique financial services, and issuer processors have become invaluable allies for fintech firms, facilitating the scaling of tailored financial solutions. In the Middle East, oil-rich nations such as Saudi Arabia and the UAE are determined to diversify their economies and boost fintech as a core sector, with issuer processors helping fintech companies to provide in-demand financial services.
In LATAM and Africa, where high mobile penetration and a significant underbanked or unbanked population exist, issuer processors have provided ‘plug and play’ infrastructures that allow fintech firms to harness these opportunities, delivering financial inclusion at an unprecedented scale.
Regulators willing to back innovation
Regulators have taken a proactive and forward-looking stance in the UK. The Financial Conduct Authority (FCA) has been instrumental in creating a positive environment for fintechs to grow. For example, its ‘sandbox’ initiative allows fintech startups to test new products in a safe environment under the FCA’s guidance, reducing regulatory uncertainty and promoting innovation. Last month, it became a permanent digital sandbox. This is a concept that has been emulated by other nations around the world – however, there’s another advantage that the FCA offers – helping startups navigate the labyrinth that is regulation.
With the FCA’s key objectives being to protect consumers, enhance market integrity, and promote effective competition, it provides direct support and guidance to innovative businesses that are developing new products or services. One of its newest tools to doing so is via Innovation Front Door, a service launched earlier this year, to help innovators find the answers to common questions.
Good regulation brings good investment
Supportive and forward-thinking moves like this at the highest levels have made the UK home to a vibrant venture capital scene that sees the global potential in fintech and is eager to invest. According to Dealroom data published by venture capital group Atomico, the UK has historically been the European hub for tech, with $19.2bn in venture capital invested in London last year – twice as much as the $9.9bn raised in second-placed Paris.
This funding has fuelled a dynamic ecosystem, with the interconnected nature of finance, talent, and innovative tech startups keeping London at the forefront of the fintech revolution. Global connectivity has allowed the UK to serve as an international conduit, connecting innovative ideas, capital, and markets across APAC, MENA, LATAM, Africa, and Europe.
A testament to this is a newly released, free-to-access digital mapping tool showing the overseas footprint of UK-based fintechs, which illustrates that of 558 UK-based fintech firms mapped (e.g. fintechs that have the UK as their registered headquarters or as place of incorporation), 209 (37%) have an operational presence outside of the UK, while 318 (57%) are providing products or services outside of the UK. The top business models represented include digital payments and digital lending.
These numbers reflect that while trust in UK fintechs comes from a blend of innovative solutions and commitment to customer-centric services – a key element of assurance is the strong regulatory structure that underpins them. The FCA not only inspires public confidence in a product’s reliability but also propels the UK’s global reputation in fintech.
The Power of a Remote Workforce for Global Expansion
This international connectivity is helping UK fintech firms leverage one of the most transformative shifts in the global workforce: remote working. UK-based fintech firms are at the forefront of harnessing the potential of remote operations and casting their recruitment nets wider than ever before, tapping into global talent pools that were previously out of reach.
While the UK is home to a skilled pool of fintech talent, 42% of the UK’s fintech workforce is from overseas. This has created unique and diverse teams, reflecting a broad spectrum of perspectives, experiences, and skills. This means they are better equipped to identify, analyse, and solve complex problems – and can produce solutions that a more homogenous team might overlook.
By sourcing talent from across the globe, UK-based fintech firms can build a deep understanding of multiple markets and customer needs, laying a solid foundation for international growth. Since 81% of FinTechs consist of under 50 people, the agility of having team members spread across different time zones facilitates 24/7 operation, enabling these firms to respond promptly to customer queries and market changes.
The UK remains uniquely positioned to continue playing a leading role in the global fintech revolution. By examining the factors that have led the UK to become a prime destination for fintech pioneers, such insights can promote further growth within the country. Fintech companies are not just using these opportunities for their own benefit but are also creating value for the local economy – helping to shape a financial sector that is more inclusive and better for society.