London FinTech sector: The rise and future of a billion pound industry

Ever since FinTech found life outside of Silicon Valley, it was only a matter of time before London established itself as the most desirable location for FinTech growth. The UK capital received $539 million in venture capital investment in 2014, three times the amount raised in 2013 and accounting for over a half of all FinTech investments across Europe.

Every year more accelerators and incubators spring up to support FinTech start-ups that are looking to launch. Although there is a degree of saturation, it is reassuring to see some truly outstanding ideas coming to life, as indicated by recent competitions and funding rounds which have propelled companies like TransferWise, Funding Circle and WorldRemit into the public consciousness.

Why the rise?

Financial institutions are generally stifled by legacy systems and regulatory demands. This usually means that their annual change budgets are predominantly spent on keeping their organisations running effectively. Reading between the lines, this translates to a lack of well-funded innovation. New start-ups can offer ideas which resonate with customers, are proven through their research programmes, and thus provide larger organisations with a head-start. This is where the concept of an incubator shines. It offers a risk-reward method where start-ups receive support, funding and the benefits of experience, potentially in exchange for a percentage of their future profits.

The UK financial sector is quite mature which makes it ripe for disruption – something that start-ups thrive on. One definite selling point for London is the sheer volume of companies that are currently located here. This allows for a rich ecosystem of partnerships and on a more basic level networking opportunities. There are great initiatives such as the Silicon ‘Drinkabout’ that allow start-ups to meet each other informally to form new business relationships.

What trends are we seeing?

Having spent time with various Fintech companies over the past few months, their opportunities and concerns are similar. As a generalisation, scalability and rapid growth is a common theme. Most are battling for the opportunity to get in front of the right person at the right organisation, armed with a prototype and big dreams. But turning those dreams into a reality is hard. Getting a prototype or product up to scratch can mean dedicating an awful amount of time on an idea which has only been tested on a conceptual level. 

Having good backing, key contacts in industry and a dedicated team elevates some of those concerns, however ultimately a Fintech start-up will be judged on the usability of its product, the flexibility of its build, and most importantly, how it resonates with its customers. We have helped small and mid-sized Fintech’s run customer testing sessions through our dedicated customer research lab, and the results and inputs that customers provide can add the final touches required to ‘make’ a product, or delay the development by months.

The only question mark going forward is if the market is too saturated and what repercussions that might have for the quality of propositions being developed. My hope is that we see more customer centric solutions challenge the way traditional players innovate for the better and open doors for partnerships between the behemoths and the newcomers. Our top predictions going forward are that there is an increase in awareness around the importance of customer based development in the creation of applications and platforms through user friendly APIs and application based banking. Additionally it would be great to see the larger financial organisations taking further strides to help their staff to innovate internally through better support structures and funding.