How FinTechs in the UK can take advantage of global demand

06 March 2020 5 min. read
More news on

Despite Brexit, UK-grown financial technology (FinTech) companies continue to attract major interest from international markets. Carl Lundberg, a partner at accountancy and business services firm Gerald Edelman, outlines the factors specific to FinTech businesses planning overseas expansion and those looking to take further advantage of global demand.

There is little doubt that the UK has become the most highly regarded market when it comes to FinTech with London long established as a (if not the) principal financial capital of the world. It sits at a convenient time zone for those looking to trade with both countries to the East and the West, and benefits from a raft of pragmatic regulation.

Tech start-ups are renowned for their potential to increase rapidly in value and, understandably, investors are keen to get on board. London’s financial markets open the door to seed and growth capital for start-ups, and investors in London’s markets have a fairly strong appetite for risk.

Tax incentives such as SEIS (Seed Enterprise Investment Scheme), EIS (Enterprise Investment Scheme), SITR (Social Investment Tax Relief), VCT (Venture Capital Trusts) and Research & Development tax credits promote innovation and enterprise.

UK FinTech overview

According to data released in a 2019 UK Government FinTech report, and statistics published by Dealroom in January 2020, total investments in digital tech companies have risen significantly since 2016, from £3.3 billion in 2016 to £10.1 billion in 2019. In 2019, investments in the UK tech sector increased by £3.1 billion from 2018, such that its growth rate surpassed both the US and China.

A vibrant community

FinTech start-ups in London are part of a vibrant start-up community, which allows them to prosper and attract great talent, with Dealroom reporting the amount being invested in early stage companies reaching £3.9 billion in 2019, increasing from £3 billion in 2018. Other major UK cities also have organisations that provide support to start-ups (Liverpool has the Liverpool City Region Combined Authority, for example).

According to research by accounting and consulting firm RSM, the number of new technology companies grew by 14% in 2018, and given London’s skilled workforce and knowledge of finance, naturally a larger number of FinTech companies are born and prosper in London. The UK’s relatively small size also allows other major cities to tap into the skills and knowledge base of London without too much travel time.

The UK FinTech industry grew significantly in 2019, with IBISworld estimating industry revenue to have increased by 7.5% from 2018, rising to £9.9 billion despite a challenging economic backdrop. Distributed ledger technology, known as blockchain, was estimated to account for 7% of industry revenue in 2019.

The UK has also become the unicorn capital of Europe, producing more than twice the number of $1 billion tech companies than any other country in Europe since 2014. As discussed in Gerald Edelman’s latest FinTech Industry Report, London housed a total of 18 FinTech unicorns in 2019, making it a world leader in FinTech unicorns and home to more FinTech companies valued over $1 billion than the previous leader, San Francisco, with 15.

Overseas expansion

But preparing for overseas expansion requires planning and consideration for FinTech companies as much as it does for any other.

”The UK FinTech industry grew significantly last year, and London now houses the most FinTech unicorns worldwide.”
– Carl Lundberg, Gerald Edelman

Our advice is to get to know the regulations and the regulator in the market or markets into which you are planning to expand. Be clear on who and how consumers or businesses might use your services and how this is regulated in each territory. Utilise the UK’s Bridge agreements with Australia, China, Hong Kong, Singapore and South Korea as this will enable direct contact with local regulators.

It’s also essential to understand  foreign market. The UK has an advanced financial system, which is respected and recognised globally. Things might not work in the same way in other jurisdictions and this needs to be understood with reference to the adoption of your product or service.

This could present both opportunities and threats. For example, Britain is becoming a more cashless society with the BBC reporting cash transactions falling by 51% in the ten years from 2008 to 2018. According to the Access to Cash Review Report, the use of cash payments fell by 16% in 2018 from 2017, with the report predicting cash payments would only account for 10-15% of transactions in 15 years.

In contrast, some countries have yet to adopt a cashless trend. A 2018 report from the Macao Association for Internet Research revealed that 72% of citizens in Macao reported never using a mobile-payment before. Although the government is trying to promote electronic payments, such as with the ‘Blue Street Programme’, cashless adoption is growing at a slow pace, especially in comparison to other countries.

It’s important to plan your ownership and trading structure early and with professional advice. Know who your professional advisers will be in each jurisdiction and in so far as it is possible, ensure they are involved at the structuring stage. Establish strong local management where necessary, be a thought leader and seek exposure in your target jurisdictions.

Don’t underestimate how much your knowledge and experience from the global FinTech capital will be sought after and respected in these markets. And, as ever with business, helping people without the expectation of reciprocity will result in opportunities emerging.