Fintech Investments

Why London’s Calling For The FinTech Industry

The year 2020 was going to be a wild ride for London’s financial services firms even without COVID-19. After all, Brexit was set to move from a theoretical change to a concrete reality, changing the rules for financial services players all over the country as well as for those on the continent. But add a pandemic to the mix and things got tumultuous pretty fast, Plaid U.K. Head Keith Grose and Innovate Finance CEO Charlotte Crosswell told Karen Webster as part of a recent PYMNTS TV session on London’s FinTech environment, in partnership with London & Partners, the official international trade, investment and promotion agency for London.

But the panelists agreed that, such challenges aside, London remains the world’s second-largest financial services market — and a place where every FinTech wants to be.

“It was an obvious choice for [Plaid] to be in, honestly,” Grose said. “When we were looking to expand outside of the U.S. and Canada, it was pretty easy to align on the U.K., and on London in particular. I think it's just a perfect place for us to be to help support the ecosystem.”

Grose noted that Plaid entered the U.K. market with strong existing demand from its global customers. The fact that there was already a FinTech-heavy environment working collaboratively made the London opening more likely to push forward the company’s innovations than weigh them down.

Grose added that the density of talent within the city creates a unique opportunity for spontaneous and highly productive interactions between players of all descriptions. With everyone a “couple of Tube stops” apart, one could, in a pre-COVID-19 world, “actually go out to the pub and bump into all sorts of people in their ecosystem, in their industry.”

While the pub and the Tube [subway] are seeing a lot less use amid COVID-19, the sense of camaraderie within the segment has pulled through relatively undented. Grose noted that what leads to innovation — linking up on ideas, starting companies and finding the tools necessary to build them — is hard to find anywhere else.

“There's a reason why we’ve seen the growth in the FinTech ecosystem that has made the U.K. a leading light in that space,” he told Webster.

But the panelists agreed that given how complex the times have become, the challenge lies in finding ways for the segment to continue to come together and make that light shine even more brightly. Grose said taking the No. 2 spot in the world’s FinTech industry is a good start, but making it to No. 1 is a better finish.

Overcoming the Rough Patches – and Finding Green Shoots

Innovate Finance’s Crosswell said financing for London FinTech startups has become challenging, but not in an evenly-distributed way. While there are fewer overall investments, the volume of large-scale investments is holding up well.

She said that in surveys, Innovate Finance has found two slightly different portraits of fundraising. Crosswell noted that smaller companies worry about cash flow and whether they’ll be able to close deals, “but on the flipside, VCs have a lot of dry powder that they want to invest, and [they’re] looking for great ideas.”

And while she’s worried about those small firms, Crosswell is encouraged by the interest that’s still there — particularly in the arena of digitally transforming large financial institutions (FIs).

As hard as these times have been for everyone, she added, COVID-19’s pressure has definitely accelerated things in FinTech, as consumers who had been nearly entirely dealing with physical banks have switched to digital practically overnight.

“What we've seen is almost five years of acceleration in five months,” she said. “You have whole groups of people getting into FinTech that you hadn't seen before, and that's led to really new use cases and new adoptions. Lenders obviously have been hit hard right now, but we’ve also seen news around investment applications, savings applications [and] online banking going through the roof.”

The New Normal

The panelists agreed that like almost everything, London’s FinTech ecosystem will likely never go completely back to its former “normal,” as the banking sector’s digitization genie isn’t going back into the bottle.

“I don't see that adoption dropping back down after COVID, because we've been here long enough that habits have been formed,” Grose said. “People are used to the advantages.”

Crosswell noted that crises have a tendency to push FinTech forward. For example, the 2008 financial crisis gave birth to today’s FinTech period. She said that traditional banks weren't providing what consumers wanted, and that “new entrepreneurs really saw the opportunity.”

We’re facing a different crisis today, Crosswell acknowledged, but there is the same innovation mindset. FinTechs see waves of consumers worldwide in need of new services in areas like affordable credit and financial management. Crosswell said those FinTechs feel tasked to build solutions for people around the world — and London is an increasingly attractive, centralized location to work on those projects.

“These firms see themselves as having a moral duty to help their customers who need [assistance] fast and are looking to this sector to help them,” she said. “So, I think it's an incredibly exciting time in terms of what we're going to see in the next six months.”

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