Globally, it has been a challenging year for fintech – but there has been agility and resilience and we have seen UK firms step forward to support consumers and businesses across the country as well as continuing to engage internationally, providing important services and forging new relationships. One such example is North America, long a bastion of shared values and a priority region. The US and Canada are established, mature fintech markets which represent large opportunities for UK innovative firms.
Ask most UK fintech firms where they are focussing their international efforts and you would be hard pressed to not see North America emerge as a key region. Conversely, it is interesting to see the value that our US and Canadian counterparts place on the UK fintech ecosystem.
With almost 25% of global investment into UK fintech coming from US headquartered funds, there is a clear opportunity to showcase UK growth stage fintech firms to the US ecosystem. The majority of US investment supports later stage deals of established UK fintech firms, revealing a funding gap at growth stage. Through visits and domestic engagements, the City of London Corporation has been working since the end of 2019 to build bridges between potential UK and US co-investment partners, and ambitious UK fintech firms. During an initial visit to the USA led by the Lord Mayor, investors we met had a strong interest, but also an ask for us to showcase some examples of competitive UK strengths in innovation – which sectors give the UK a leading edge?
‘The UK Edge’
Some of the sectors that had most pull for US markets, and where they saw the UK having a head start, were Payments, Regtech, AI, the emerging Tech for Good space, and Insurtech. ‘Powering the Fintech Revolution’, our brochure produced with Innovate Finance that launched last year, showcases these areas in more detail. Looking ahead, North American financial institutions will also place increasing importance on sustainability – perhaps a further opportunity for the UK to showcase its strengths?
A Global Pandemic
The 2020 global pandemic has been a game changer for fintech investment. Suddenly it no longer matters if you are working with people half a mile away or on the other side of the world. Investors, like many others, have moved online and relationships that once relied on in person meetings can be forged virtually. During a recent virtual visit to North America, the investors we spoke to told us that the personal relationships that had always been instrumental could now be maintained virtually. Distance – once cited as an issue particularly for Silicon Valley investors who have so much tech opportunity on their doorstep – had ceased to be a consideration due to the global travel restrictions.
The 2020 global pandemic has been a game changer for fintech investment. Suddenly it no longer matters if you are working with people half a mile away or on the other side of the world.
Many of the investors we met have in recent months completed several new deals entirely virtually. UK fintechs working in the regtech space such as Comply Advantage and Onfido both closed sizeable funding rounds with North American investors in 2020. Furthermore, PrimaryBid’s $50m Series B raise was conducted fully remotely during the pandemic and involved investors such as Canadian pension fund OMERS. This is a positive reinforcement of global interest in the UK.
Appetite for tech investment still growing
As the global working culture has changed, there has been no sign of investors retrenching to solely domestic investments. In fact, according to Innovate Finance’s latest figures, in 2020 UK fintech attracted $4.1bn in venture capital, ranking second globally behind the US. Moreover, recent figures from London & Partners show that 2020 saw $2.2bn invested in London fintechs alone, through 50 funding rounds with at least one US investor participant.
There has been another key takeaway from our investor engagement. The acceleration of digitisation in finance brought by Covid-19 is providing a tailwind to fintech firms – and sharpening appetite to invest. VC, private equity and institutional investors are clear that they are ready to put their capital to work in support of innovative technologies that are the new mainstay of finance. There was widespread agreement that financial innovation will benefit more than any other sector from VC investment. And the need for global solutions to global challenges has increased the outward focus of investors. This brings, of course, huge mutual opportunity for international investment to ride the wave of UK fintech, and inject the capital firms need to shape the future of finance.
Even as international travel resumes, we are unlikely to see a full return to traditional ways of working. International deal making in a pandemic has brought personal, environmental and business advantages that won’t disappear quickly. However, warm relationships are still seen as invaluable and investors seem to still prefer personal recommendations and introductions over cold approaches. This demonstrates the value of the networks you can build by being on the ground. So we expect to see a rebalancing – many of the investors we met are planning a more blended approach in the long term. Several VC’s are firming up plans to open UK offices. They understand that boots on the ground will cement access to that pool of investable talent in the UK – and boost that chemistry factor.
The UK Government are committed to supporting the UK’s status as a fintech leader – from startup, to scaleup to unicorn
The commercial opportunities for fintech investment are being backed by policy too. The UK Government are committed to supporting the UK’s status as a fintech leader – from startup, to scaleup to unicorn. This includes looking for opportunities to increase London’s attractiveness as a location for listing innovative companies. The Chancellor’s statement on future listings regimes – promises to position London markets well for the upper end of the scale up journey – and policy leaders are looking to make recommendations soon on the future listings regime.
Keeping up momentum
The UK is a recognised leader in fintech. A culture of innovation in financial services, along with enabling regulation and strong government support means the industry is set to thrive. The role of tech supporting society post-pandemic has thrown this further into the limelight. London’s international brand has a role to play in amplifying UK wide strengths in fintech. We’re ready, at the City Corporation, to help keep up this collaborative momentum. We’ll keep on boosting the trade links between our international partners, and our world leading finance industry. Making sure the right innovators meet the right capital investors to safeguard the future of innovation. The UK’s financial services have proven to a be an investable proposition through uncertain times. And we see that only increasing.