Have you ever thought about the role of Londoners in guaranteeing the UK as the fintech capital of the world? Our capital is currently hosting UK Fintech Week, an opportunity to showcase and celebrate the businesses transforming our best export: financial services.
On Crowdcube, the crowdfunding platform I work for, there are now over 67,000 investors who own shares of fintech companies, and almost 20,000 of them are in London and the South East. They are customers, owners and champions who have put money behind the companies constantly improving finance.
The advanced guard were often working in financial or professional services – early adopters because they came into contact with legacy systems every day, and understood the problems new entrants were disrupting.
But now, thousands of Londoners (you know who you are!) could spend a day in the capital drawing cash from a bank in which they are also a shareholder, and only eating, drinking and shopping in businesses in which they have invested.
As the Brexit debacle rumbles on, now feels like a timely moment to remember what the UK does best. According to the latest data from Dealroom and Tech Nation, 14 of London’s 36 unicorns – companies worth over $1bn (£773m) – are fintech firms. And our capital remains the testbed for the titans of tomorrow.
Last month, VC firm GP Bullhound predicted that the UK will be home to 25 percent of the billion-dollar companies Europe will see in the next few years. Many tipped to enter that category are fintech firms: the likes of Starling Bank, Lendinvest, Onfido and Callsign.
Why do fintechs do so well here? I believe much of it is down to co-creation: a conscious strategy that glues parties in a market together for their mutual benefit.
Across the sector, we are seeing companies choosing to bring their customers right into their business, helping determine new products, and becoming shareholders.
We were not surprised at Crowdcube to see investment volumes into fintechs leap from £10.2m in 2017 to £52.8m in 2018.
Fee-free stock trading platform Freetrade raised £3m, savings app Chip £3.8m, pocket-money card Gohenry £6m, and Monzo, the digital bank, a staggering £20m.
Often, these companies do not need to offer customers shareholdings for the cash. At the time of Monzo’s crowdfunding raise in December, it had, just two months earlier, closed an £85m VC fundraise.
Co-creation can be thought of as a catalyst for network effects, with companies using ownership to shrink the gap between the cost of acquiring a customer and that customer’s lifetime value. Eventually, each new customer actively improves the service provided to the rest.
We have shown with our own shareholders, for example, that they invest on average 12 more times than other investors on the platform, as well as referring friends and family.
Meanwhile, the co-creative march of fintechs has forced incumbents to raise their game. Apps like HSBC’s, for instance, have learned from Monzo, Revolut and Starling and continue to be refined because of those companies.
And the recent partnership between Monzo and Oaknorth, the SME digital bank, which enables the former’s customers to open a savings account with the latter, underlines just how differently the new guard are doing things. Fintechs are forcing change, and co-creation is underlined by crowdfunding, which enables them to ally with their customers for a lifetime.
Between this year’s UK Fintech Week and 2020’s, we should expect to see a serious response from incumbents.
So far, fintechs have provided for them a novel testing and learning ground. Now, their products are better and they are taking customers.
We will see widespread refinement and building-out across the industry: new products, improved offers, grand gestures, and/or expect to see acquisitions – and likely some surprising ones.
Fintechs may have to respond by following Monzo and Oaknorth’s lead and partnering, or wait for the inevitable sector consolidation.
We have only seen the beginning of what UK fintech has to offer, and we are about to witness the come-of-age sector maturing.