Continuing our Road to Recovery series, we find the UK fintech sector has held up well during the pandemic, and prospects for the future look good.
- Fintech has continued to grow during the pandemic.
- The UK government has put in schemes to promote UK fintech abroad.
- The Tech for Growth programme, linking UK fintech companies with developing nations, is being piloted across Africa.
- Fintech leaders believe that Brexit will not slow the sector down.
Many sectors have been badly affected by the coronavirus pandemic and are concerned by the possible outcomes of Brexit. Fintech is not one of them.
Fintech has continued to grow throughout 2020, and its leaders are relatively blasé about the effects of Brexit.
For example, John Collison, the co-founder of Stripe, said that the UK and Ireland fintech sectors would continue to thrive after Brexit:
“Over the last five years, there’s been $50bn (£37.2bn) in investment into the FinTech space there. I think it’s more advanced than it is in the US. There is also a large domestic market in the UK.”
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The Government is pushing fintech forward as a crucial element of the UK export market. Organisations such as Fintech UK, Fintech Wales and Fintech Scotland offer support to UK fintech companies that want to trade globally.
The Department for Trade has also launched an initiative called Tech for Growth to stimulate UK fintech activity in developing regions, starting with a pilot year across Africa then expanding to South East Asia and Latin America.
“Diversifying and increasing trade and investment in sectors such as tech will be crucial for economic recovery from coronavirus, and Britain has a vital role to play globally,” said Gerry Grimstone, UK Minister for Investment. “The UK is home to some of the most innovative tech companies in the world while also being one of the deepest and most globally connected financial centres. It is why we are the top choice for tech firms seeking a base to launch internationally into new markets.”
The rise of contactless, and the benefits of uncertainty
The rise in contactless payments throughout the pandemic has been an accelerator for many fintech companies, particularly those offering digital cash services, cashless payments platforms for businesses or cash monitoring apps.
Float, a cash flow software company, expanded into Australia this year. CEO and co-founder Colin Hewitt says that he has seen an uptake in interest from businesses that want to keep a closer eye on the cash coming in and going out.
“From our side of things it has brought this awareness to the public. The uncertainty of this year has brought a much stronger need for the awareness around financial management planning, which is our, our area. There’s been a spike in interest. That’s been really positive for us as a company.”
Elsewhere, there is a lot of uncertainty in the insurance sector, with questions around what is insurable and what isn’t concerning Covid-19. As a result, there are opportunities for fintech disrupters to enter that space.
That’s not to say that fintech is completely challenge-free.
Open banking rules have significantly broadened the market for fintech lenders in recent years. In 2020, these organisations have been providing customers with loans during lockdowns. However, with companies taking on more debt and the economic pressures stretching on, the risk that businesses will default on those loans is increasing. “This could make it difficult for lenders,” says Hewitt. “We’ve seen peer-to-peer lending coming under difficulty. It could happen in the wider lending industry as well.”
There has also been some uncertainty around open banking itself, with some banks still not compliant. This is holding back the fintech sector. Hewitt would like to see the Government pushing all banks to become compliant with open banking rules.
“If we’re left in a bit of limbo with open banking, where some banks are compliant, and others aren’t, we’re not able to rely on it as an infrastructure. You still have to have a backup system, which defeats the whole purpose of it. It would be nice to see the Government bringing that to completion.”
Scott Donnelly, CEO of fintech lender CapitalBox, believes that there will be a ‘day of reckoning’ for fintech businesses, with the less viable business models disappearing. “I’m generally optimistic about where things go. But everything’s a bit depressed compared to let’s say, January of 2019. There’ll be some consolidation. You’ll see the big players start buying up some of the smaller players more. Amex bought Cabbage in the US, which is one of the big FinTech, SME lenders there. So you’ll see that as well: big banks and brands like Visa and Amex, stepping in and bringing these into the fold, for better or worse.”
Fintech and Brexit
Whether Brexit will affect fintech businesses depends on their focus. For Float, Europe is not a high priority, as Xero and Quickbooks are not so dominant there. CapitalBox is more reliant on Europe but has offices in several territories including the UK, so is also insulated from any effects.
“We do a lot of things cross-border,” says Donnelly. “If we’re lending in one country, we don’t necessarily need to set up a whole business there. We just lend across the border from Sweden. That makes it easier. You take it for granted that you can operate in different countries and it’s relatively simple. I don’t know all the details on how complex it’s going to be going forward for UK companies to do the same, but I suspect they’ll at least have to set up another business on the continent.”
Despite some difficulties around Brexit and Covid-19, fintech has proved to be remarkably resilient. And with the Government putting some of its chips on the sector as a critical element of UK trade post-Brexit, it should only continue to grow.
“It’s great to see programs like Tech Nation and the work towards education and bringing FinTech companies together to share to share knowledge,” says Hewitt. “You have to build a foundation in your own country first. Whatever the Government can do to help smaller FinTechs get off the ground outside of London would be really valuable, because there are lots of ideas out there across the country; it should not have to revolve around London. Scotland especially is really well placed with its financial background to bring a lot to the table.”
Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.