Home » Regional innovation can help the UK keep its fintech crown

Regional innovation can help the UK keep its fintech crown

Regional innovation can help the UK keep its fintech crown

The UK has long been a fintech powerhouse, with its startups often attracting the lion’s share of investment. But last year, climate tech startups overtook fintech for the best-funded segment.

While fintech regained the top spot for funding in the first quarter of 2024, the data has sparked questions about what the UK needs to do to retain its financial technology crown.

There has been a notable drop in investment across all areas of tech – and fintech is no exception.

Kirsty Rutter, fintech investment director for Lloyds Banking Group, says it has been a “challenging market backdrop in the last couple of years, the rising interest rates offer investors alternative routes to returns that can be lower risk than investment in an earlier stage company.”

Despite a challenging couple of years – with funding falling by 65% year over year – the UK remains the strongest European fintech hub. Globally, it is only behind the US in terms of investment.

Janine Hirt, CEO of Innovate Finance, an industry body, says there are several measures that can help UK fintech maintain its momentum.

“These include areas like securing continued access to global and domestic investment and talent; fostering a more proactive regulatory regime and ensuring clarity around regulation; and cementing policies that support early stage through to high growth companies and entrepreneurs,” says Hirt.

UK fintech strengths

The UK fintech sector is a broad church that includes many sub-divisions, such as open banking, payments, digital challenger banks and regtech.

There are more than 1,200 fintech companies in the UK payments space, notes Hirt, which have attracted more than £20bn in investment over the past decade.

“The UK has historically been the leader in payments innovation, and we have also paved the way with our open banking initiatives – now it is time to ensure that we continue with this progressive approach, deliver on open banking, and move through to open finance and ultimately open data,” says Hirt.

One of the UK’s most successful payments company is London-headquartered Wise, formerly TransferWise. The company listed on the London Stock Exchange in 2021 and its most recent results showed post-tax profits increased by 212% year over year.

Meanwhile, the regtech market is predicted to be valued at $87bn by 2028 globally, according to Verified Market Research – and the UK is well positioned to take a healthy slice of that opportunity.

Regional fintech growth

While London is widely considered the world’s top financial centre – and the UK capital continues to dominate for funding – there is plenty of regional fintech innovation primed to drive UK fintech growth.

“London stands strong as the leading global city hub for fintech, garnering more investment than New York or San Francisco,” says Hirt. “However, it is important to emphasise that we are seeing amazing fintech companies launch, grow, and thrive all across the United Kingdom – and this is one reason the UK is such an outstanding place to build a growth company.

“From Cardiff to Leeds, from Manchester to Edinburgh, clusters and cities across the UK each offer unique opportunities and benefits for entrepreneurs looking to set up and scale impactful companies.”

Leeds, for example, was named as one of the UK’s top four fintech hubs in the Kalifa Review, a 2021 report spotlighting the opportunities for the sector across the UK.

“Leeds has long been a growth sector for both financial services and technology and in recent years we’ve also seen it become a global hotbed for fintech startups and scaleups,” says Stuart Clarke MBE, founder of UK Tech Week.

“As well as home-grown talent such as green challenger bank Tred and Dealtrak, the city has also seen international fintech brands such as PEXA and LHV Bank build a presence there.”

Companies based in the city are supported by Leeds-based organisations such as the Centre for Financial Technology, which launched early last year, and Innovation at the University of Leeds.

The Welsh fintech sector currently employs 16,000 people, according to the membership association FinTech Wales. Fintech companies located there collectively raised £53m in publicly announced funding rounds – a 300% increase on 2022.

This growth is being driven not only by major fintech companies that call Wales home, such as GoCompare, Confused.com and MoneySuperMarket but also by fast-growing startups like Delio and Wealthify.

Experts point to a supportive ecosystem and access to talent as key growth drivers in Wales.

There are also fintech specialisms developing in hubs across the UK. Norfolk is home to 24 fintech companies that have collectively raised £49m, according to a report commissioned by advocacy group Tech East.

The East of England county has the highest concentration of insurance workers outside of London, thanks to its companies such as Aviva and Marsh having a major presence in the area. This in turn is sparking a nascent but growing insurtech ecosystem.

Rutter attributes part of the UK’s fintech regional growth to localised support groups.

“The UK is blessed with very strong regional fintech hubs that support and engage the local market directly, examples being Fintech North, FinTech Scotland, Fintech Wales, Fintech West, and Fintech Northern Ireland,” says Rutter.

“These organisations do a great job of connecting the ecosystem and showcasing the awesome businesses that are growing in the regions, each region has its own fabulous sub-culture, with some cities being home to companies that reflect their histories in manufacturing and trade.”

Retaining the crown

Harnessing the fintech innovation taking place outside of London will tap into additional market potential and ensure UK fintech is less reliant on one city to drive growth, along with spreading talent and capital more evenly across the country.

One example of the potential waiting to be unlocked is Norfolk, which a recent report found could be worth up to £100m by 2027 with sufficient access to capital.

The market opportunity for regional tech hubs is significant, with consumer adoption of fintech products and services growing every year.

“Eight out of every ten adults in the UK use at least one fintech tool on a regular basis, demonstrating the incredible impact that fintech is having on consumers across the country,” says Hirt.

Lloyds Bank’s relationship managers are experienced in the tech sector and are keen to support further growth of this vibrant industry. Please get in touch today to discuss how we might help your business.  

Contact Steve Harris, head of tech sector, at Lloyds Bank.

Stephen.Harris@lloydsbanking.com

For more information about how Lloyds Bank supports UK tech businesses, click here

In partnership with Lloyds Bank.