Does the United Kingdom’s fintech sector need a helping hand? At first glance, the answer to that question would appear to be a resounding no. According to figures published last month by Dealroom and HSBC Innovation Banking, Britain’s financial technology startups and scaleups attracted $3.9 billion in investment in 2024, retaking the pole position from climate tech. However, according to Innovate Finance – an organisation established to “accelerate Britain’s leading role in financial services” – there are a number of factors hampering the progress of Britain’s fintechs.
If success is measured by equity investment, then the U.K. continues to dominate Europe’s evolving financial technology sector. However, as Innovate Finance CEO Janine Hirt is keen to point out, rival hubs have not been resting on their laurels and the U.K. should not take its preeminent position for granted.
“We are in a good place,” she says. “However, where the UK used to be ahead of most of Europe combined, we are now only ahead of the next five hubs. There are other hubs that are progressing at a faster pace.”
Should that be a cause for concern? Yes, boosted by a deep well of expertise in the City of London financial center and a relatively light touch approach to regulation, the U.K’s fintech sector was an early innovation economy success story but it doesn’t exist in a vacuum. Hubs such as Berlin, Paris, Stockholm and Vilnius have their own momentum so it seems natural that the tectonic plates of investment will move around a little. I put it to Hirt that as the number one destination for VC cash, London doesn’t have much to complain or worry about.
A Fall In Investment
As she sees it any relative decline in the U.K’s attractiveness to investors should not be something that is simply accepted.
“We have got an ecosystem where there are more unicorns than anywhere else in Europe,” she says. “And we have a government that is committed to supporting fintech through the Financial Services Growth Strategy.”
In practice, that means the UK government has identified financial services as a key driver of growth and is currently seeking industry input. A report on what the strategy actually is is due to be published in the spring.
In the meantime, Hirt sees no reason why the value of Britain’s fintech companies shouldn’t return to a position where it is greater than the rest of Europe combined. As it is, however, investment has fallen. “We were down 30% last year – that’s a greater decline than in the rest of the world and other hubs are catching up.”
Support For Challenger Banks
So what can be done? Well, Innovate Finance is making a number of suggestions, including more support for challenger banks. These have been the consumer-facing poster children for U.K.-based fintech but Hirt says the new generation of banks face a number of challenges. She cites the example of Authorised Push Payment fraud.
This is an umbrella term for frauds that involve consumers being persuaded (conned) into transferring money out of their accounts and into the hands of bad actors. New regulations mean that banks have a greater responsibility to prevent these frauds and compensate victims.
Innovate Finance would like to see the liability spread. For instance, according to UK Finance – another banking industry body – 70% of these frauds originate from social media or telecoms platforms.
“It is really critical that the big techs are brought to the table to share liability and that the liability isn’t falling on challenger banks,” says Hirt, adding that as things stand, the regulatory environment is affecting investor perceptions. “When investors look at investing into challenger banks, they see this as a negative.
Keeping Fintechs In The UK
The need to keep startups and scaleups in the U.K. has become a talking point across the innovation economy, but in recent months challenger banks Monzo and Revolut have indicated they may list in the U.S.. Work has been done to strengthen our exchanges, but we need to ensure we have liquidity. Says Hirt.
Equally important, Innovate Finance is urging the government to press ahead with the Mansion House reforms which should see more investment by UK pension funds. “Fintech would probably be the biggest recipient of this type of growth finance,” she says. “More investment in fast growth companies would also benefit pensioners.”
Hirt is also keen to see more progress on Open Banking. Introduced in the U.K. in 2017, Open Banking solutions allow consumers to share their bank account details with trusted third parties. The aim was to enable fintechs and established institutions to offer a wider range of services – such as advice or lending – based on real-time bank account data. Progress has slowed, but Hirt sees scope for further innovation.
“We want to expand into open finance, not just open banking. So we’re looking to expand beyond current accounts into other sectors of finance. I don’t think the potential has been fully harnessed. There has been a commitment from the government but we want to see action.”
One simple way to move things forward, she says, would be a government campaign to educate consumers on the benefits of open banking. The idea of sharing bank account details is alien to many.
All this adds up to a considerable shopping list for a government that has a lot on its plate. It has to be said, Innovate Finance is lobbying for a single sector. However, Hirt stresses the importance of that sector. “Fintech is one of the thriving sectors of the economy. It is where we are a global leader,” she says.
We probably shouldn’t worry too much about the future of Britain’s fintech industry. It is in a good place, but Innovate Finance would argue there is more to be done.
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