By Russell Bennett
The U.K. fintech scene is booming with 2019 expected to be a record year for investment after the sector hit a new high of $2.9 billion (£2.3 billion) in funding in the first six months of the year. The U.K. has now become synonymous with highly successful fintechs, such as Monzo and Starling, which is helping to cement the country as a leading fintech market. The U.K.’s fintech success has led to London being widely considered the ‘fintech capital’ of the world. However, as the U.S. fintech sector continues to go from strength to strength, receiving $18.3 billion in investment across 470 deals in the first half of this year, will London be able to hold on to this this title for much longer?
The U.K. fintech scene
According to a new study, London is now home to seven fintech unicorns — fintechs valued at more than $1 billion — and is expected to catch up with San Francisco’s nine as early as this year. The U.K. is also streets ahead of the U.S. in terms of the digital banking opportunities it is offering. For instance, Monzo now has more than 1.9 million U.K. customers, despite not having any physical branches, after luring customers away from traditional banks with the promise of a better customer experience. The digital bank has aspirations to develop its offering even further to allow customers to do everything from switch energy providers in-app as it integrates with third-parties.
This level of digital banking innovation is yet to make its way across to the U.S., where card payment technology trails behind and consumers are often required to provide a signature when making a card transaction. In fact, currently, contactless payments account for just a fraction of card transactions in the U.S., but by 2022 it is thought this trend will catch on to make up more than a third of electronic payments in America.
Additionally, while regulation may have previously been an inhibitor, in the U.K. and Europe, the introduction of Payment Services Directive (PSD2) has sparked the introduction of open banking and a new wave of innovation. According to EY, 94 percent of fintechs are considering how open banking can enhance current services, and 81 percent are using it to enable new services. The use of open application programming interfaces will enable third-party access to data traditionally held by incumbent financial institutions, meaning that fintechs can use this to develop new products and services. Consequently, this could see U.K. fintechs innovate in areas currently unavailable to the U.S.
The U.S. fintech scene
The financial landscape in America is wildly different from the UK’s with research finding that 30 percent of all consumer transactions in America are paid for in cash, while the average American also writes 38 checks a year, nearly five times the number of the average Brit. Additionally, the American mobile-payments industry is more than 50 times smaller than China’s. These factors are reflected in the country’s fintech scene and the products on offer with $1.8 billion invested into insurtech in 2018.
Yet, despite consumers perhaps not being as open to innovative card technologies as those in other markets, this doesn’t seem to be holding fintechs back. While San Francisco is largely considered to be the fintech capital of America, the country actually benefits from several emerging fintech hubs; unlike the U.K., which has a single fintech hub in London. For instance, Atlanta, which has long been a financial services hub, is fast becoming a hive of fintech innovation and plays host to a number of fintech startups, incumbents and technology accelerators. As home to payment companies including WorldPay and BitPay, Atlanta has earned the nickname “Transaction Alley.” Similarly, New York is producing new and exciting fintechs and benefits from a fast-growing pool of talent. Owing to its size, U.S. fintechs face less competition than London-based fintechs as they aren’t condensed into one area and benefit from a bigger playing field.
The winner is…
Both the U.K. and U.S. fintech sectors are undeniably strong, but they are also extremely different, owing to varying regulations and the markets they are serving. While there’s no longer a clear ‘fintech capital’, both sectors have clearly established themselves as world leaders. Looking to the future, we could see greater collaboration between the two markets thanks to the introduction of the ‘Financial Innovation Partnership’ (FIP), established to “build on and deepen bilateral engagement on emerging trends in financial services innovation” between the U.K. and U.S. As a result, a new wave of innovation within the global fintech landscape could be on the horizon.
Russell Bennett has been CEO of Fraedom since it began in 1999. As CEO he is involved in all aspects of the business from commercial and product strategy through to technical direction and delivery, working closely with global banking partners. With over 20 years’ experience in FinTech, Russ is a leading expert in payments and expense technology.