VC Funding Helps UK FinTechs Weather Brexit

Today marks a red letter day in Europe, to be sure. Perhaps especially so for FinTechs across the Pond.

Right into Brexit, which takes effect today (Jan. 31), data compiled by Innovate Finance show 2019 proved to be a banner year for London’s FinTech scene. Might we expect more of the same?

As the data show, venture capital and private equity money that flowed into U.K.-based FinTech firms was up 38 percent year on year to $4.9 billion. The growth came against a backdrop where global investments slid by 28 percent, largely on the heels of China’s decline, where funding there was down 93 percent year over year.

Among the banner deals in the U.K.: Greensill Capital got $800 million, and Checkout.com garnered $230 million.

Innovate Finance reported that London received the bulk of FinTech spending that went to the U.K., at 88 percent of fund flows.

The fact that such enthusiasm for U.K. FinTechs persists may auger hope for navigating challenges of Brexit. As noted in this space, the challenges are considerable ones.

One of the most significant issues, and one that could have far-lasting impact is the fact that, as TheCityUK has reported, in tandem with Odgers Berndtson, there has been a decrease in the number of graduates coming to the U.K. from other areas in Europe.

Where go the brainpower goes the innovation.

“The current shortage of tech talent is a strategic issue for the U.K.’s financial and related professional services industry, yet little has been done to quantify our current and future skills need,” said Nathan Bostock, chief executive of Santander U.K. bank and chair of TheCityUK’s working group on trade and investment, as quoted in Reuters.

It’s interesting to note that among the largest deals in Europe, putting the U.K. aside for a moment, Germany has two spots in the top five, with N26 having received $470 million and WeFox $235 million. Germany represented, per Innovate Finance’s figures, the second largest market for FinTech investment in Europe, with $1.3 billion, far outpacing Sweden, which trailed with $778 million.

Open banking may do much to cement the U.K.’s position in FinTech, at least in terms of attracting capital. Two years on, open banking, as fostered by the Competition and Markets Authority in the U.K., mandates that banks open their data to third parties in a standardized way. That makes it easier for FinTechs to streamline and automate onboarding processes, among other functions. The question over access to the single market (that is Europe) remains to be settled, and may evolve with some bumps. But there are opportunities for the U.K., and the FinTechs based there, to see new and expanded markets outside the U.K., even while potential remains inside the U.K. to tap into demand for digital banking services. Last year, for example, the U.K. set up FinTech “bridges” with Singapore, South Korea, Hong Kong and Australia — in essence creating international markets on a case-by-case basis.

Brexit is here, and what’s next might not be as bad for FinTechs as might have once been feared.