What does the next decade have in store for UK fintech?
A decade ago, the term “fintech” had barely been coined, and the financial services world referred to more staid terms like “financial technology”.
High-growth startups focusing on the space were few and far between, and very few VCs had fintech on their investment radar.
In parallel, the ecosystem was slowly being introduced to innovative startups targeting financial services. In 2010, startups like publicly-listed Funding Circle, as well as global payments platform WorldRemit, were launched.
This was the beginning of the movement showing that the financial technology sector was massively ripe for disruption.
It is this environment that has allowed unicorns such as Monzo and WorldRemit to thrive, while London has emerged as a global leader in the space. In the last year, global fintech has seen record levels of investment, particularly in London where the number of deals overtook those in New York.
In the first eight months of 2019, over $2bn was invested in London-based fintechs across 114 deals, according to a report by London & Partners and Innovate Finance.
This year brought us Monzo’s $144m series F round, led by Y Combinator’s “Continuity” growth fund. Azimo became profitable in the first half of the year, and TransferWise became the UK’s most recommended brand.
I suspect that the good news won’t stop here, as figures such as Revolut’s average three-year growth rate of 48,477 per cent and OakNorth’s 37,499 per cent will no doubt continue to attract even more funding and customers alike.
So as we enter the next decade, what next in this exciting industry?
For a start, digital banks will continue to grow market share.
Ricky Knox, co-founder and chief executive of Tandem Bank, warns that established banking institutions should be even more scared of the rise of the neobanks, which will go mainstream as customers start to shift their primary current account.
“Startups will begin to beat enterprise vendors as providers of choice to banks and financial institutions,” he says. “Public blockchain projects will also start to yield results and come out of proof of concept.”
Second, artificial intelligence (AI) will continue to shape the financial sector.
“We are going to see a diversification of requirements and software, driven by the demand for the capture of more data about consumer behaviour,” predicts Shawn Tan, chief executive of AI ecosystem builder Skymind Global Ventures.
“We will also see more thought put into platform development, particularly around the issues of ethics and diversity.
“In addition, regulations and technology have to adapt to ensure that we can live up to the promise of fintech and AI’s possibilities. This will affect any area of banking, from customer service to risk mitigation, including fraud detection.”
Speaking of regulation, regtech will increase in relevance and prominence in the global financial system.
“Real-time AI-enabled surveillance will become a norm for both institutions and regulators,” says Liza Russell, chief executive of Inbotiqa, an enterprise business email solution which harnesses the power of machine learning.
“AI is the only viable tool to tackle money laundering due to the complexity, scale and variety of data and agent behaviour.”
As a result of an increasingly regulated business landscape, many financial institutions will be looking to raise their spending on regulatory technologies to meet anti-money laundering requirements and reduce the chances of forking out hefty fines for non-compliance.
That’s the view of Husayn Kassai, chief executive and co-founder of ID verification and facial biometrics firm Onfido. “Mainstream banks will accelerate the development of fintech-type services and start partnering much more with the reg-techs that underpin them,” he says.
Finally, diversity in talent will continue to dominate the agenda.
“There’s been an ongoing demand to develop a future workforce that’s more reflective of society, especially from bigger financial services companies that want to invest in the creation of it, by making the most of the government’s apprenticeship levy scheme,” explains Evgeny Shadchnev, chief executive of Makers, a UK software bootcamp.
“We expect this demand to continue to grow in 2020, but the main concern is ensuring we’ve got the steady flow of talent that believes they can play a part in the digital economy.”
While the above trends are exciting, the sector is still relatively new, and the upstarts continue to operate in a traditionally slow-moving industry. This, combined with continued Brexit uncertainty as we begin work towards the December deadline for a trade deal with the EU, will certainly make for an interesting 2020.
When asked what their forthcoming top challenges were, fintechs told an Innovate Finance and E&Y survey that attracting key talent, customer adoption, and building key partnerships with established players were at the top of their lists.
These are critical to success, and must be dealt with head-on if London fintechs are to thrive in 2020.
Main image credit: This Is Engineering