As leaders in the UK’s fintech industry gather in the capital for London Fintech Week, we are reminded of the city’s important role in the global fintech industry.
London is one of the top three global fintech hubs and has been a central driving force behind the UK’s emergence as a fintech leader, with roughly two-thirds of all fintech companies in the UK headquartered here. It has also helped establish a ‘halo’ of fintech activity around Greater London in cities such as Milton Keynes, Oxford, Brighton and Southampton, with a number of these areas developing specialisms in banking, payments and WealthTech.
Inflation tightens its grip
London Fintech Week arrives at a difficult moment for fintech companies. Investment into fintech hit record levels in 2021, but like most other industries, fintech is not immune to the grip of inflation. Against the backdrop of increasingly volatile markets, financial institutions have become more risk averse, meanings funds are more difficult to access.
Over the past few weeks, big names such as Klarna and SumUp [paywall] amongst others have seen valuations drop amidst a sharp decline in venture capital investment into the sector. This is having a very real impact on real people, with an estimated 3,700 job cuts across the fintech industry in the second quarter of 2022 alone.
In reaction to this, FTWL has announced a new review into fintech funding which will bring together regulators, investors and finance firms to address declining investment and a plunge in valuations across the UK fintech landscape. Rafe de Kimpe, CEO of FTWL, said: “We’re going to look at what has happened to funding, how can we learn from this and how we can work together to make sure that industry gets better than before.”
Looking to the long run
There are signs of uncertainty ahead for fintech and this, aside from the war for talent, could be one of the industry’s biggest challenges to date.
The full maturation of any industry is a gradual process that comes with inevitable ups and downs – and fintech is no different.
The union between finance and technology is redefining the financial sector from top to bottom and despite the drying up of investment, fintechs continue to move forward, disrupting incumbents and driving adoption.
The Open Banking Implementation Entity (OBIE), for example, revealed in June 2022 that the number of open banking users hit a record of 6 million, just four months after reaching the 5 million milestone. Similarly, recent data from PYMNTS.com found that nine out of ten financial institutions are in the midst of, or planning to, roll out embedded finance solutions.
And although there has been an increase in the number of fintech companies laying off staff, this trend is likely to reverse in the long-term. According to Statista, the number of employees in the UK’s fintech industry is estimated to increase by 15% between now and the end of the decade.
As London Fintech Week draws to a close, it’s clear the industry is making a real difference to the lives of real people. In the face of mounting obstacles, fintechs need to remain resilient and continue to lead the way in financial innovation.
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