Accelerating change – How the London FinTech landscape is evolving
23 March 2016
2015 saw a major shift in the UK FinTech landscape. If you started a conversation about FinTech in 2014 there was probably a 50:50 chance you were talking about innovation in Payments. (Over 50% of US FinTech investments in 2014 were for payments companies; the UK Government estimated that payments was 50% of the FinTech economy in 2014) If you started a conversation about FinTech in 2015, it was anyone’s guess what you were talking about. The market has seen a major diversification over the last 15 months.
From our analysis of the 400+ applications to Startupbootcamp FinTech London 2015, data on UK FinTech funding rounds in 2015 ($901m invested across 72 deals; a 35% increase on 2014), and the UK results of the PwC Global FinTech survey, four key trends stand out:
- Payments, once the main focus for financial technology innovation, has now reached a certain level of maturity and other areas are starting to gain ground. The relative share (30% of applications to Startupbootcamp and 25% of UK FinTech funding rounds) illustrates the size of the target market. But it’s a challenging market for startups to crack because of the scale required, and mature technology companies like Apple and Google have started to compete.
- Asset management and wealth was the biggest FinTech growth area in 2015, with very high representation in Startupbootcamp FinTech London and Finovate Europe 2016 (over 20% of applications and speaking slots respectively). There are many drivers of this innovation and disruption. The industry is facing cost pressures and the regulatory burden continues to increase. At the same time new technologies like AI and machine learning are coming of age. All of these factors and many more, are driving change and creating opportunities for entrepreneurs.
- Blockchain had the most attention of any FinTech trend in 2015, but it has yet to drive significant change in the industry. With the exception of Bitcoin we have yet to see a major deployment of the technology in financial services. Many companies are struggling to grapple with the realities of leveraging the technology – only 47% of UK corporate respondents to the PwC FinTech survey thought they had a moderate understanding of blockchain. That is all likely to change in 2016, with companies testing the potential with proofs of concept and pilots.
- Despite the many opportunities that FinTech presents, corporates are still struggling to partner with FinTech startups. Many FinTech companies are able to deliver more efficient and effective capabilities for companies, but corporates are struggling to work with them. Only 45% of companies have FinTech at the heart of their strategy and 27% have purchased services from FinTech companies. Legacy IT systems, regulation, procurement, sales cycles and many other factors are acting as brakes on corporates’ ability to innovate within their businesses. Those that are able to successfully tackle these challenges, whilst building an ecosystem of FinTech companies around them, will reap the rewards that FinTech offers.
Looking ahead into 2016 we see four major opportunities:
- Challenger banks – the early adopters’ year: There seems little doubt that 2016 will be the year when one or more of the digital-only challenger retail banks launch in the UK. The implications in the short-term are likely to be limited but the challenger banks hope this will mark the beginning of a sea change in retail banking.
- The growth phase – investment management FinTech: It’s also going to be an important year at the other end of the consumer banking spectrum, in asset and wealth management. If the sheer volume of companies entering the market in 2015 is an indicator, the sector is likely to keep developing and maturing, and will receive a greater proportion of funding. More partnerships between startups and incumbents will emerge as asset managers seek to harness the emerging innovation.
- InsurTech – a new frontier: Although we haven’t talked about InsurTech in our report, it’s going to be an interesting area to watch over the next year. Insurers from across the spectrum are starting to engage with InsurTech companies and the world’s first InsurTech Demo Day is happening in April. Keep a look out for Startupbootcamp’s InsurTech trends report in the second half of this year.
- Blockchain – the tipping point:2015 saw a lot of noise about blockchain but also the first indications of some substance. In 2016 we’ll see lots more financial services companies launching pilot programmes using blockchain technology. Many of the potential benefits of blockchain lie in market efficiencies and in order to realise them companies must work together. Banks have a good track record of symbiotic cooperation though – SWIFT and MasterCard being two good examples. Blockchain is here to stay.
To read a full copy of our report, Accelerating Change: London FinTech 2015-2016, please click here.
If you’d like to read the full results of our Global FinTech survey, Blurred Lines: How FinTech is shaping financial services, please go to: https://www.pwc.com/fintech
And if you’re an entrepreneur with a fantastic business idea and would like to apply to Startupbootcamp FinTech London 2016, please go to: www.startupbootcamp.org/accelerator/fintech-london.html