How investment, consumer attitudes and government incentives are driving a fintech boom

21 January 2021

Start-ups and small businesses are already making the most of the UK’s innovation friendly landscape in both financial services and technology to drive the digital transformation in financial services. The UK is a global leader in fintech. The sector is worth US$ 12.87 billion in revenue and has a an annual growth rate of almost 10%, according to IBIS World’s latest report on Financial Technology in the UK.

Record-breaking investment

2019 was a record year for fintechs. According an Innovate Finance report, fintech companies received a total of US$ 4.9 billion in investment. The UK attracted more capital and completed more deals than the other European top 10 markets for fintech combined. There has been strong interest from public markets, private markets and strategic investors such as banks, MasterCard, Visa and PayPal.

The race towards digital payments

Payments and digital banking are estimated to be the largest fintech subsector, with revenue accounting for an estimated almost a quarter of the industry total, according to IBISWorld. Worldpay’s 2019 Global Payments Report revealed that 29% of eCommerce spend in UK was made using Digital/Mobile Wallet. All this data points clearly towards a trend of using mobile apps. Indeed, businesses that do not adapt to changing customer demands through increased digital transformation will likely find themselves left behind.

Government incentives

The UK Government has launched a series of support schemes, many of which may apply to fintech companies. Each scheme has slightly different qualifying criteria. One example is the Future Fund, where applicants must already have raised at least US$ 325,000 in aggregate between 1 April 2015 and 19 April 2020 from third party investors. Documenting such requirements and handling the application process is not easy but may well be worth it.

As we slowly move towards a post-COVID-19 ‘new reality’, UK fintech companies are in fortunate position. Since the early days of the pandemic, customers as well as financial institutions have been receptive to using the digital solutions that fintechs provide. The future is unclear but it seems likely that digital and contactless payments, AI and algorithm-based loan provisions and similar fintech innovations are here to stay.

The future for fintechs

We expect to see an acceleration in consolidation in the market, with a split between niche and mass market. Less differentiated or developed business models will see the impact of that weaknesses exacerbated.

Read our full report