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- Next fundraising round by UK FinTechs expected to exceed £2.6bn across the industry
- UK FinTechs plan to expand internationally, with continental Europe and Asia seen as the two most important regions; Asia overtaking North America since the last Census in 2017
- FinTechs cite top three challenges as attracting suitable talent (53%), customer adoption (48%) and building partnerships with established players (37%)
A Census of UK FinTech firms by EY and Innovate Finance has found that the UK FinTech sector has continued to attract rising levels of investment despite global economic uncertainty, although many still see challenges ahead in finding the right talent and the levels of consumer adoption.
The 2019 UK FinTech Census, based on a study of over 224 FinTech companies and supported by Her Majesty’s Treasury, reveals that the average total investment raised by firms grew from £15m in 2017 to more than £20m in 2019 – an increase of a third (33%), despite the uncertainty surrounding Brexit.
In their next funding round, UK FinTech firms are expected to raise a total of £2.6bn, with Series A funding - the first significant round of venture capital financing - accounting for over a quarter (26%), with one-third of respondents anticipating an IPO in the next five years. As well as a capital injection though, FinTechs are looking for additional benefits from investors; more than half (54%) value access to new customers as the most important benefit; 14% cite partnership opportunities and 12% list international expansion and growth.
Finding the right digital skills, however, remains a key challenge for the industry and one that hasn’t changed much in the two years since the last Census – over half (53%) of firms this year reported recruiting suitable talent as a major challenge. Software engineering, system architecture and development was cited as the most in-demand skillset (ranked first by 52% of firms), but also the hardest to find. The second most valuable, and equally difficult to source, was data analytics and data science skills (ranked top by 19% of firms).
Many UK FinTechs are looking at home to solve this problem and build their talent base, with a number of larger FinTechs also looking further afield. Europe and Asia are the two most important regions, according to the Census results, with Asia overtaking North America as the second most popular region since the 2017 Census.
Levels of customer adoption (48%) and building partnerships with established players (37%) are also seen as significant challenges by the industry. Additional concerns for FinTechs are ensuring sufficient capital and liquidity (44%) and navigating Brexit uncertainty (42%).
At the same time, gender diversity continues to be a challenge for the sector. The gender split of the UK FinTech sector’s employee base is 70.5% male and 29.5% female (consistent with the 2017 Census results). The 2019 Census also showed that only 25% of FinTechs have at least one female co-founder.
Tom Bull, UK Head of FinTech at EY, comments: “Despite the global economic and political uncertainty over the last couple of years, the UK FinTech sector has continued to attract impressive levels of investment, which is testament to its growth ambitions and reputation as a global leader. Looking ahead, the industry maintains a positive outlook, however challenges remain. Persistent issues over talent are a real cause of concern and the UK Government’s talent and skills agenda is welcomed as the sector looks to secure the necessary resources to flourish. Equally, the Census makes it very clear that more needs to be done to try and redress the gender imbalance, which remains a challenge despite the efforts of Government and industry to make FinTech more diverse.”
Charlotte Crosswell, Innovate Finance CEO, adds: “The UK FinTech Census illustrates both the progress and stature of the sector. Having a clear sense of what FinTech firms need to continue growing is vital in helping to sustain economic prosperity. Investment levels are high, and set to break new records, but we need to support businesses in attracting and retaining talent, and back their ambition to scale globally. FinTech is the future of our economy – now is the time for industry to lead the way, backed by government, and ensure further growth.”
John Glen MP, Economic Secretary to the Treasury, comments: “The FinTech Census 2019 comes at an important time in the development of UK FinTech. Increasing numbers of UK FinTech startups are expanding, and firms that have successfully established themselves here are looking internationally to new markets. The important work undertaken by EY will help us to ensure the UK continues to be at the cutting edge of innovation, and one of the best places to start and grow a FinTech firm.”
Omar Ali, UK Financial Services Leader at EY, concludes: “This year’s Census results are really heartening. Despite the challenges that all UK businesses are facing, the sector continues to demonstrate resilience, serving millions more customers and attracting significant inward investment. As we move into 2020 and beyond, Open Banking will continue to shape the landscape, driving continued innovation from both start-ups and incumbents. We hope this Census will continue to shed light on the challenges and opportunities facing FinTechs. Great progress has been made over the past couple of years and renewed momentum will ensure the UK retains its title as the centre of world FinTech.”
The 2019 UK FinTech Census was carried out by EY and Innovate Finance, supported by Her Majesty’s Treasury, and was designed to gather key insights directly from FinTechs, charting key areas of growth, as well as potential challenges. Data was gathered on the specific areas of revenues, investment, talent, regulation and future expansion. The 224 respondents in the study provide a strong sub-sector representation, with the largest representation from financial software, SME lending and payments and remittances.
