UKTI Fintech Capability 2014 Gov.uk

FintechThe UK’s unique
environment for growth
UKTI_Fintech_capability_pres_A5_Print_AW.indd 1 05/11/2014 10:14

Fintech The UK’s unique ecosystem for growth
Fintech
in the UK
The UK is a uniquely well-
suited location for technology
applied to financial services –
Fintech.
This fast-growing sector covers both:
– Traditional Fintech (with larger incumbent
technology firms supporting the financial
services sector), and
– Emergent Fintech (with small,
innovative firms using new technology
to bring financial services directly to
consumers, often disrupting existing
business models).
The UK and Ireland is now the fastest-
growing region for Fintech investment
(Accenture). Deal volumes here have been
growing at 74 percent a year since 2008,
compared with 27 percent globally and
13 percent in Silicon Valley. During the
same period, the value of Fintech
investment increased nearly eightfold,
to US$265 million in 2013 – a rate of
51 percent a year, nearly twice the global
average (26 percent), and more than
twice that of Silicon Valley (23 percent).
The UK’s growing strengths in Fintech
are due to:
– the presence of a large and
technologically sophisticated
customer base
– London’s position as a world-leading
centre for financial services
– good availability of business capital
– a supportive regulatory approach
– excellent financial services infrastructure,
and
– London’s position as a global trading hub.
I want the UK to lead the world
in developing Fintech. That’s
my ambition – short and sweet.
RT Hon George Osborne,
Chancellor of the Exchequer

1gov.uk/ukti
In addition, the UK offers many specific
market opportunities in Fintech, especially
in relation to payments, platforms,
software and data analytics.
In Fintech, the UK is the place to do
business, and the UK Government is
committed to supporting Fintech
companies.
Many of the biggest players in Fintech have
chosen to have a base in the UK. Why have
they done so? The following is based on
what they say themselves.
The UK and Ireland is now
the fastest-growing region
for Fintech investment.
Deal volumes here have
been growing at 74 percent
a year since 2008
From 2008, the value of
Fintech investment in the
UK and Ireland increased
nearly eightfold, to
US$265 million in 2013
74%
US$265m

2 Fintech The UK’s unique ecosystem for growth
The strength of the UK’s
financial services sector
The UK financial services sector,
which accounts for approximately
9.4 percent of UK GDP, is one of
the largest globally, and more
active than those of the UK’s
continental European peers.
Access to talent and expertise
Approximately 1.1 million people work in
financial services in the UK, with two-thirds
of those employed outside London. This
represents a large pool of well-qualified
and experienced talent that is available
for the Fintech sector.
British Higher Education is world class
(three of the world’s ten best universities
are in the UK – Times Higher Education,
2013/14), supplying the Fintech sector
with finance, engineering and design
talent, while in the digital technology
hub Tech City, London-based Fintech
businesses have an outstanding source of
technology skills, right on their doorstep.
Global talent pool
The talent that the UK can draw upon
comes from around the world. 13 percent
of all the 4.3 million international students
who are being educated at tertiary level
are educated in the UK.
All of this, together with a long history
of innovation, makes the UK a hotbed
of creativity.

3gov.uk/ukti
Population by country and GDP value of financial services
Source: World Bank
UK
(Population: 63m)
GDP value
£140bn
Germany
(Population: 82m)
GDP value
£80bn
France
(Population: 66m)
GDP value
£50bn
1.1mpeople work in financial
services in the UK,
two-thirds of them
outside London
of all international
students at tertiary level
are educated in the UK
13%

The UK as a global hub
for financial institutions
London is one of the world’s largest
centres for financial institutions, with a
truly international client base, including:
– 251 foreign banks, and
– 588 foreign financial services companies.
UK financial services infrastructure
The UK has excellent financial services
infrastructure, and a willingness to
incorporate innovative technologies to
improve consumer experience. This creates
a dynamic environment in which Fintech
companies can launch their products.

5gov.uk/ukti
The Faster Payments system
resulted from a European
Union directive, stipulating
that all transfers of money
should be completed within
two days. Faster Payments,
developed in the UK, enables
the majority of transactions
to be completed within two
hours, conferring a significant
advantage over other
economies in the EU.
The UK is a leading provider of insurance,
accounting for 7 percent of worldwide
premiums, and with particular strengths
in speciality insurance
The UK is a global leader
in banking and cross-
border lending
The UK is the second-largest asset
management centre in the world after
the USA, accounting for 36 percent of
European assets under management
The UK is a market leader in
trading-related activity, and
in particular foreign exchange and
over-the-counter (OTC) derivatives

Openness to new models
in financial services
UK consumers are relatively
sophisticated, and are open
to new, innovative models for
delivering financial services both
within and outside the traditional
banking system. They also spend
much more on e-commerce than
their equivalents in Germany,
France and the USA.
The UK has been an early adopter of
a large number of innovative business
models in financial services, especially
when they offer lower upfront costs,
internet delivery and greater convenience.
Examples include:
– financial aggregators (around a third
of the UK population now use them to
choose their car insurance)
– e-commerce: the UK’s adoption of
e-commerce is significantly greater than
that of its continental peers and the USA
– peer-to-peer lending: the UK has been
one of the fastest adopters, with gross
advances almost doubling every year
since 2010. There are now at least 42
peer-to-peer lending platforms in the
UK, offering equity, royalties and rewards.
The UK alternative finance market has
grown by an average of 75.1 percent over
the last three years, and by 91 percent
(£492 million to £939 million) from
2012 to 2013. Between 2011 and 2013
it provided £463 million in early-stage
growth and working capital to over
5,000 start-ups and SMEs: this is
predicted to grow to £1.6 billion in 2014,
with £840 million in business finance
being provided for start-ups and SMEs.

7gov.uk/ukti
Consumer e-commerce spent per capita
Source: IMRG X-border Training Guide 2013m Population
figure obtained from IDATE/Industry data and Ofcom
UK Germany France
2012
2011
2010
£892
£1,017
£1,175
£252
£360
£446
£539
£297
£374
Percentage of the population obtaining car insurance through
aggregators (2012)
Source: Finnacord Aggregation metrics survey
Germany
22%
France
11%
UK
30%

High levels of technical
literacy and connectivity
The ability to access online
services, and an active online
economy, are key to Fintech
gaining traction in the market.
The UK has one of the highest levels of
internet and mobile phone penetration
globally. The UK is also a leader in online
access to financial services.
In addition, the UK market is highly
interconnected, with good IT and transport
infrastructure. It is also relatively easy to
communicate with, given the density of the
population (especially in the South East)
and the widespread use of national media
(TV and newspapers).
Increasing willingness
to switch providers
Historically, the primary brake on innovation
in financial services technology has been
inertia around switching providers. But
disenchantment with incumbents has
combined with Government efforts to make
the process of switching easier, meaning that
UKconsumersarenowmorelikelytoconsider
switching financial services providers.
The UK current account switching service,
for example, simplifies, automates and
speeds-up the process of changing a bank
account in the UK, from an average of
18 days to seven days.

9gov.uk/ukti
The UK has one of the highest
levels of internet and mobile
phone penetration globally
The UK is also a leader
in online access to
financial services

London as a gateway
The vibrant city of London is a
unique innovation environment:
– London is home to a number of start-up
accelerators, which are a new kind of
for-profit business incubator, offering
seed funding, mentoring and training
to fledgling technology companies.
London’s accelerators include
Startupbootcamp FinTech, L39, Barclays
Accelerator and Bold Rocket, which are
focused specifically on innovation in
financial services technology, and
offer office space, as well as access
to global networks of investors, for
Fintech start-ups.
– London is home to Google Campus,
a new centre offering desk space and
mentoring for technology companies.
– London is a base for one of NewFinance’s
Meetup groups. NewFinance is a network
of over 2,500 professionals actively
involved in financial innovation through
technology, including a wide range of
entrepreneurs, technologists, investors
and service providers, who are working on
the new web and mobile platforms that
are changing the face of financial services.
– London is where the sector regulators,
the Financial Conduct Authority and the
Prudential Regulation Authority (Bank of
England), are based.
– London is the focus of the venture capital
community in the UK.
– London is home to a cluster of start-ups
known as Tech City, or Silicon Roundabout.
Tech City attracted more than 15,000 new
companies in the year to April 2013, making
it the most popular start-up destination in
the UK.
And with a wider community of creative,
media and other B2C entrepreneurs, in
London you will come across many like-
minded people.
15,000Tech City attracted more than
15,000 new companies in the
year to April 2013

11gov.uk/ukti

But this is not
just about London
1. Edinburgh
Home to banking, insurance
and pensions, investment
management, asset servicing
and auxiliary services.
2. Belfast
Number one destination
globally for financial
technology research and
development investments.
Traditional Fintech players
have established software
development centres, eg
NYSE Euronext, CME,
Fidessa.
3. Leeds
The wider Leeds City
Region is the UK’s second
largest centre for banking
and is home to the Bank
of England’s only base
outside London.
First Direct, Direct Line,
TD Waterhouse, RBS and
others have significant
operational presence in
the city.
17,200 42,00073,000
Financial and related professional services employment (2012)

13gov.uk/ukti
4. Manchester
The Manchester
metropolitan area
represents the second
largest financial centre
in the UK and is home
to organisations such as
Co-operative Financial
Services, BNY Mellon,
RBS and WorldPay.
Barclays’ global technology
centre is located just south
of the city and employs over
3,000 staff carrying out
work supporting the bank’s
global IT infrastructure and
developing new products
such as mobile applications.
5. Birmingham
HQforIslamicBankofBritain
andhometoDeutscheBank’s
supportcentre.
6. Cardiff
One of the UK’s fastest-
growing locations for
financial and professional
services.
Home to Admiral,
GoCompare, Target Group,
LBG, Zurich, confused.com,
Brewin Dolphin operations.
20,00050,00047,600
1
2
4
3
5
6

Opportunities
in sub-sectors
Particular opportunities exist in
the UK in four Fintech sub-sectors:
payments, platforms, software and
data analytics.
£20bn
Santander launches
US$100 million fund to
back Fintech startups,
July 2014
The estimated annual
revenue generated
across payments,
software, data and
analytics and platforms
US$100m
The UK is fast becoming the
destination of choice for any
Fintech company. The UK
government is committed to
supporting Fintech companies.
Sue Langley, Chief Executive Officer,
UKTI Financial Services Organisation

15gov.uk/ukti
Payments
The cards and payments
industry is going through a
substantial transformation,
attracting a wide range of
independent innovators and
market entrants.
Platforms
Several unique platforms, including
in peer-to-peer lending, trading
and personal wealth management,
as well as aggregators, have
demonstrated the viability of
innovative Fintech.
Software
The UK has a history of
developing innovative software
solutions, for example for
risk management, payments,
banking, asset management and
capital markets, insurance
and accounting.
Data analytics
The financial data analytics
market (including data analytics
around credit reference, capital
markets and insurance) is being
transformed by the increased
speed and connectivity
of technology.

Payments
The cards and payments industry is going through
a substantial transformation, attracting a wide range
of independent innovators and market entrants.
Payments market by segment and estimated market size
£8.1bn
£1.9bn
Online payments
and FX
Infrastructure
Source: EY Fintech Market Overview
Estimated
market size
£10bn

17gov.uk/ukti
The payments market is the largest
sub-sector within UK Fintech, and
continues to grow strongly. The
Government has introduced a new
payment system regulator, whose role is to
ensure that the current payment system,
which was owned by and operated for
incumbents, is open to new companies in a
fair and transparent way. This removes one
of the barriers in the market, and creates
new market opportunities for businesses
in this area. It also highlights the role of the
UK Government in creating a level playing
field for companies of all sizes.
It is widely expected that the online sector
will continue to grow, with a change in
operatingmodels,furtheremergenceofnew
market entrants (especially aggregators),
and increasing usage of big data, leading
to a shiftinthecompositionoftherevenues
generated by value-added services.
There are opportunities in this area for
investment both in established providers
and disruptive technologies.
Success story:
Monitise
UK-based Monitise plc is a technology and
services company that has grown in just
over a decade, to become a world-leader
in mobile money – banking, buying and
making payments with a mobile device.
Leading banks, payments companies,
retailers, mobile networks and media
owners use Monitise’s technology platforms
and services to connect people securely
with their money, using any device, operator
or network, in both developed and emerging
markets. Today, Monitise provides services
to more than 350 financial institutions and
leading brands globally, with 28 million
users, and it processes 3.4 billion mobile
transactions annually, to the value of
US$71 billion. Now with 750 employees,
Monitise had a market capitalisation of
£55.9 million when it was listed in 2007.

Platforms
Several unique platforms, including in peer-to-peer
lending, trading and personal wealth management,
as well as aggregators, have demonstrated the viability
of innovative Fintech.

19gov.uk/ukti
Thanks to a well-developed
regulatory framework newly
designed for this sector, and growing
market penetration, businesses that
can prove their models in the UK will
be in the best position to export to
other markets as they develop.
There are many opportunities in this
nascent area for foreign direct
investment (FDI).
Success story:
MarketInvoice
UK-based Fintech company MarketInvoice
has developed an award-winning online
marketplace, allowing companies to sell
outstanding invoices, confidentially, to
raise working capital. Launched in 2011, the
platform allows small and medium-sized
businesses who have outstanding invoices
to large corporates to trade these with
institutional investors, online. By November
2013, the company was trading £10 million
of invoices a month. The platform offers
a new take on invoice finance, selling
through an online exchange rather than
bilaterally to a bank. In August 2013,
MarketInvoice was awarded £5 million in
UK Government funding to lend to small
businesses, through the Business Finance
Partnership – a scheme to boost finance
through non-bank lenders.
The UK has been one
of the fastest adopters
of peer-to-peer lending,
to the value of
£843m in 2013

Software
The UK has a history of developing innovative software
solutions, for example for risk management, payments,
banking, asset management and capital markets,
insurance and accounting. It offers many opportunities
for international development.
In particular, the back and middle offices of
financial services organisations often have
systems that are patchy, and in need of an
upgrade to fit with the digital, connected
world. The large volume of activity
undertaken by banks means that there is a
major opportunity to provide sleeker, more
efficient and more innovative software to
the financial services industry, which has
underspent on its system development
since the financial crisis.

21gov.uk/ukti
Success story:
Misys
Misys is a multinational software
company, based in London. It specialises
in software for banking, capital markets,
lending, enterprise risk and investment
management. Founded in 1979, Misys now
has 4,500 employees, and more than
2,000 customers across 130 countries.

This is providing significant opportunities
to improve consumer experience, manage
risk and improve monitoring of business
activities. This is an area where both
disruptive and supportive technology is
developing significantly, and the UK holds
a market-leading position in financial
institutions data research and analytics,
meaning that there are many market
opportunities in this area.
Insurance market players are increasingly
embracing new technology solutions,
and there are likely to be many further
opportunities for innovation in this area.
Recent developments include the
introduction of telematics, involving the
capture and analysis of driving data to help
car insurers assess drivers’ risk, based on
actual driver behaviour. The ever-growing
amount of data that is being consumed
and analysed by insurance companies
also creates opportunities for innovation
in visualisation, to help executives grasp
all the available data at their fingertips.
There are opportunities for businesses
to expand into the market both through
direct acquisition and organic investment.
Data analytics
The financial data analytics market (including data analytics
around credit reference, capital markets and insurance) is
being transformed by the increased speed and connectivity
of technology.
Insurance market players
are increasingly embracing
new technology solutions, and
there are likely to be many
further opportunities for
innovation in this area.

23gov.uk/ukti
Success story:
Markit
Markit is a leading provider of financial
information services, providing products
that enhance transparency, reduce risk
and improve operational efficiency – for
example through independent data, trade
processing of derivatives, foreign exchange
and loans, customised technology platforms
and managed services. Its customers
include banks, hedge funds, asset
managers, central banks, regulators,
auditors, fund administrators and insurance
companies. Founded in 2003, Markit
now employs over 3,000 people in ten
countries. In 2012 the company had annual
revenues of US$860 million, and it raised
US$1.28 billion in an initial public offering
in 2014.

The Fintech market and regulation
– can I operate in the UK?
The UK regulator, the Financial
Conduct Authority (FCA),
supports the Fintech industry,
providing transparency and
creating a level playing field.
It liaises with other parts of the UK
Government, so that it speaks with one
voice, and it has a reputation for being
open-minded.
The FCA’s Project Innovate is a clear signal
that the regulator wants to ensure that
Fintech businesses operating in the UK
are supported by the UK’s regulatory
environment. As part of the project, the
FCA has said that it will open its doors
to any company that is developing new
business models that fall outside of
current regulation.
Supporting tax measures
A number of tax incentives are also provided
by the UK Government to encourage
innovation,includinginFintech.Theyinclude:
– the Enterprise Investment Scheme (EIS)
– the Seed Enterprise Investment Scheme
(SEIS)
– Entrepreneurs’ Relief (ER)
– RD tax credits
– the Employee Share Scheme (ESS)
– the Patent Box scheme, whereby
companies pay a lower rate of Corporation
Tax on profits earned from their patented
inventions and other innovations.

25gov.uk/ukti
Supportive regulation:
Bitcoin
Virtual currencies, like Bitcoin, were
banned in many countries, while others
levied a form of VAT or other tax
on its use. After careful consideration,
the UK chose not to introduce any taxes
on Bitcoin, demonstrating an open mind
when it comes to innovative Fintech.
Responsibility for regulation of the
peer-to-peer lending (or crowdfunding)
industry has now been passed to the
Financial Conduct Authority. Crowdfunding
platforms will have strict systems in place,
to protect investors. The move, which
enables new business models to be
developed whilst protecting consumers,
has been broadly welcomed by the industry.

Access to finance in the UK
– can I get funding for my business?
Many different sources of finance
are available in the UK, for Fintech
businesses.
The Fintech sector is well served by angel
investors, many of whom have worked in
financial services, have the required skill
sets and experience to understand Fintech
business models, and are excited by the
market opportunities. The SEIS and EIS
tax breaks provide a significant benefit
to start-up investors.
A new development in the UK market is the
emergence of accelerator and incubator
schemes (eg Techstars, Startupbootcamp
and Level 39). These provide access to a
network of contacts in the relevant market,
and help prepare businesses for venture
capital fundraising.
In terms of development capital, UK
venture capital funds invested between
£300 million and £400 million in 2012.
Recent deals include Transferwise receiving
£25 million, and Spanish bank Santander
establishing a new US$100 million fund to
back Fintech start-ups, which will be
managed out of London.
The private equity investor base is well-
established in the UK, with over 130 funds
locally registered.
The UK Government also supports the
availability of capital at this stage, for
example through the British Business
Bank, which aims to ensure that there is
a healthy supply of finance providers for
smaller businesses, in addition to the High
Street banks. The British Business Bank’s
Business Finance Programme, and its
successor the Investment Programme,
explicitly support lending to smaller
businesses through innovative finance
providers, both by providing funding,
and stimulating similar investment from
the private sector. Applications for over
£800 million in funding are currently
being considered, from a range of Fintech
businesses and other alternative finance
providers. The British Business Bank also
supports Fintech businesses through venture
capital funds, including the Business Angel
CoFund, the Enterprise Capital Funds, and
the VC Catalyst Fund.

27gov.uk/ukti
UK Export Finance are the UK’s export
credit agency, helping exporters and
investors by providing credit insurance
policies, political risk insurance on overseas
investments and guarantees on bank loans.
Finally, listing is an important source
of capital for Fintech companies, and
is potentially the ultimate destination for
ambitious and innovative Fintech companies.
The UK has an active initial public offering
(IPO) market.
£800mApplications for over
£800 million in funding are
currently being considered by
the British Business Bank
There is no doubt the UK is
leading the way in financial
innovation, not just in Europe,
but globally. This fund… will
help the UK and the rest of
Santander Group stay at
the forefront of financial
technology.
Santander UK’s CEO Ana Botin,
on the launch of Santander’s new
Fintech venture capital fund

Further
information
Contact UKTI
For specific advice on how UKTI
can assist your plans to invest in
the UK Fintech ecosystem, or
facilitate your plans for growth
worldwide, please contact:
Shaul David
Fintech Specialist,
Financial Services Organisation
UK Trade Investment
E: shaul.david@ukti-invest.com
T: +44 (0)7818 454 312
Gavin Cleary
Chief Commercial Officer,
Financial Services Organisation
UK Trade Investment
E: gavin.cleary@ukti-invest.com
T: +44 (0)7776 244 221
General email:
enquiries@ukti-invest.com
Telephone (from outside of UK):
+44 (0)20 7333 5442
Telephone (from inside UK):
0845 539 0419
gov.uk/ukti

gov.uk/ukti
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UKTI
UK Trade Investment is the Government Department that helps
UK-based companies succeed in the global economy. We also help
overseas companies bring their high-quality investment to the UK’s
dynamic economy acknowledged as Europe’s best place from which
to succeed in global business.
Disclaimer
Whereas every effort has been made to ensure that the information in
this document is accurate, neither UK Trade Investment nor its parent
Departments (the Department for Business, Innovation and Skills, and
the Foreign and Commonwealth Office) accept liability for any errors,
omissions or misleading statements, and no warranty is given or
responsibility accepted as to the standing of any individual, firm,
company or other organisation mentioned.
© Crown Copyright 2014
You may re-use this information free of charge in any format or medium,
strictly in accordance with the terms of the Open Government Licence.
To view this licence, visit:
www.nationalarchives.gov.uk/doc/open-government-licence
or email: psi@nationalarchives.gsi.gov.uk.
Wherewehaveidentifiedanythirdpartycopyrightinformationinthe
materialthatyouwishtouse,youwillneedtoobtainpermissionfrom
thecopyrightholder(s)concerned.
Anyenquiriesregardingthismaterialshouldbesenttousat
enquiries@ukti.gsi.gov.ukortelephone+44(0)2072155000.
Thisdocumentisalsoavailableonourwebsiteatgov.uk/ukti
gov.uk/ukti
Published August 2014
by UK Trade Investment
URN UKTI/14/1028

UKTI Fintech Capability 2014 Gov.uk

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