Could the UK’s FinTech Talent make it the Next Silicon Valley?

By Ed Rose

The extension of Entrepreneurs’ Relief and introduction of Investors’ Relief announced in the Budget are clearly designed to attract long-term capital investment into companies, particularly small companies with ambitions for high, rapid growth. Does this mean savvy investors will start looking to get into booming sectors like FinTech?

The Rise of FinTech

It’s really not so long ago that what we now refer to as “FinTech” was pretty much exclusively the province of a handful of big banks, their payment processing partners and associated businesses. Aside from a few forward-thinking tech upstarts like PayPal, any innovations in fields such as payment and transaction technologies tended to be driven from within the monolithic – and technologically conservative – financial services industry.

In 2016, it’s a different playing field. Consumers and businesses want financial technology that’s flexible, straightforward and works for them. While traditional market players still have their place – and account for around 82% of revenue in the sector – FinTech innovation is increasingly being driven by emerging, more agile start-ups who can bring both technological savvy, and disruptive new ideas to the sector.

The rise of FinTech is borne out by ongoing massive global investment in what is clearly not yet a fully mature sector. The UK is currently the world leader in FinTech – with more people working in the sector than in Australia, Germany, Hong Kong and Singapore combined – and the British market as a whole represents an estimated £20 billion in annual revenue.

How the UK Became a World Leader

The UK’s current dominance in the market is at least partly due to market opportunity. Businesses have access to a large and relatively sophisticated consumer market, which embraces technology and is open to innovation. London’s position as a global hub of financial institutions also plays its part – the UK’s FinTech market is largely concentrated in the capital, although the sector is seeing growth in other sites including Manchester, Edinburgh and Leeds.

Access to investment is key to the UK’s leading position in FinTech. Venture capital investment in the sector hit a massive £2.46 billion in 2015, an increase of 70% on the previous year. The availability of capital is significantly ahead of the rest of Europe, with half of London’s tech investment coming from within the UK – although it’s worth noting that the United States accounts for 29% of investment, with the remainder sourced from both within and outside the EU.

Do VCs Back the Idea or Team Pedigree?

Investment in FinTech – whether that’s from more traditional venture capitalists, angel investors or a crowdfunding platform – is increasingly focused on ideas and innovation. However, seasoned start-up investor, Ruzbeh Bacha, founder/CEO of personalised financial news feed, CityFALCON, believes they aren’t always top of an investor’s list of considerations:

“I’ve seen several entrepreneurs with good ideas and prototypes failing to raise funding. You’d be amazed at how investors are ready to pour tons of money into copycats, especially when the idea is proven and the market opportunity is large. Most investors are risk averse and look for factors that may reduce their risks – particularly in the UK. Why do you think the government has come up with so many tax benefits to encourage angel investors to invest in start-ups?”

It’s a massively competitive market, and start-ups need to ensure their idea really stands out if they want to attract the attention of investors. Those that do can certainly reap the rewards; witness the fundraising success of emerging players, such as Atom Bank, which successfully raised £135 million, or challenger bank Mondo, which took just 96 seconds to crowdfund its first £1 million.

Of course, ideas are all well and good; you also need the tech expertise to deliver on your grand promises. Perhaps unsurprisingly, 45% of jobs within FinTech businesses are IT roles – analysts, developers, designers, engineers and the like. Hiring the right team is absolutely vital; however, attracting the top talent in this field isn’t always as easy as it might be.

A Good FinTech Developer is Hard to Find

In the current IT recruitment marketplace, there’s no shortage of candidates eager to break into the FinTech sector; however, sifting through this surplus to find the exceptional talent required to meet stringent finance/banking standards is notoriously difficult.

Some FinTech companies are exploring alternative approaches to recruitment – such as payment processor Stripe, which is currently experimenting with sourcing already established teams of software engineers, who are taken through the hiring process together, rather than individually. This approach no doubt has its benefits, but I have doubts over the sustainability of rolling this model out more widely.

I’m also intrigued by the algorithm developed by untapt, which automatically matches FinTech engineers to jobs.

Is There a FinTech Skills Gap in the UK?

However, there’s a question mark over how Britain’s vote to leave the EU might affect the talent available to the UK’s FinTech sector. With current EU-wide labour mobility policies, the nation’s technology sector as a whole undoubtedly benefits from European workers – particularly those from Eastern Europe where schools and universities place a strong emphasis on science and mathematics.

On balance, there’s at least a possibility that tougher UK immigration and visa rules could drive that EU talent to competing centres, such as Berlin, widening the tech skills gap in London and across the UK. So the question becomes: is the UK FinTech sector strong enough to survive – or possibly even thrive – in post-Brexit Britain?

Could FinTech Put the UK in a Strong Position Post-Brexit?

The UK is currently the world leader in financial technology and – although the FinTech market globally is in a period of development and growth – it would be wrong to underestimate the strength of Britain’s position in that market. London is the world’s leading financial centre, a hub of international trade and commerce, and there’s evidence that FinTech start-ups often use the UK market as a base for future growth into international markets.

Analysts have also suggested that the current boom in UK FinTech is no bubble, and that the recent emergence of disruptive start-ups is the herald of a more serious period of investment in which established banks will start to fund FinTech more heavily. There’s also an argument that any period of change and transition due to Brexit could in fact be an ideal time for innovative FinTech start-ups to make their mark.

Could a Brexit Trigger a FinTech Exodus?

Some have argued vehemently that leaving the EU would destroy the UK’s world-leading position in the FinTech market. There’s no denying that there are many businesses – from the largest multinationals to the smallest start-ups – to whom Britain’s membership of the EU is an absolutely integral part of their reason for being based here. Reuters recently reported that 7 out of 10 London-based FinTech companies said they would consider moving their headquarters out of the UK if the country voted to leave the EU.

Ruzbeh Bacha echoes this sentiment:

“For early stage companies, including FinTech start-ups, the uncertainty that Brexit brings is bad for business, at least in the short to medium term, which means they may not be around in the long term. Some companies only have enough money to survive for a few months, so market volatility and uncertainty could be fatal in some cases.

“And if you’re a non-UK investor looking to invest in a UK start-up, you’ll probably want to wait for clarity on how Brexit will affect the British economy, currency and future business plans before making a commitment. You’d certainly be forgiven for exploring more calculable opportunities in the meantime.”

Would the Tech Talent Pool Dry Up?

There’s also the very real possibility that the pool of IT talent available to UK FinTech businesses could be diminished in the aftermath of the Brexit vote. Currently, tech firms in London and across the UK benefit from the free movement of workers between EU member states; many employ graduates from Hungary, Poland, Romania and the Baltic states, which are renowned for high educational standards in maths, science and technology. Stricter – and more expensive – visa requirements in an independent Britain would make these workers more likely to seek work in established EU FinTech centres, such as Germany or France.

“As a FinTech entrepreneur, I want to make sure we hire the right people so I’m very hands-on with the recruitment process,” says Ruzbeh Bacha. “I look for people who are a good fit with the company culture, are passionate about what we do, who love to solve the problems faced by our target audiences, and who are ready to learn and fail fast if required. We prefer hungry, young developer talent that isn’t motivated purely by money – whether that’s from inside or outside the EU makes little difference, aside from the cost implications.”

Freedom to Attract Better FinTech Talent?

Without our current obligations to EU immigration agreements, the UK would be free to revise its own visa requirements; this could potentially be leveraged to attract top-notch IT talent from outside the European Union. Reduced access to tech graduates from within Europe could feasibly be offset by attracting skilled workers from places such as South Korea, Malaysia and Sri Lanka, who are already contributing to FinTech booms in China, Hong Kong and Singapore.

“CityFALCON hired two people in the UK last year, but couldn’t hold onto them due to salary demands,” explains Ruzbeh. “The FinTech skills gap in the UK means quality people are picked up for big salary packages by the big companies, so start-ups like ours have no option but to look outside the UK and the EU.

“We’re currently building a team in Ukraine, where we’re able to source highly skilled technical personnel, who are hardworking, diligent and passionate about what they do – and cost a fraction of what we’d have to pay in the UK.”

Brexit will have a rapid and long-lasting effect on every sector of the UK economy. However, it is my belief that the current strength of our world-leading FinTech sector could be a valuable bargaining chip in our future dealings with both Europe and the rest of the world.

Of course, this would have to be backed up by legislation and regulation that will allow us to attract and retain the best available talent, as well as ensuring the continued availability of investment capital to UK-based FinTech enterprises.

About Ed Rose, Talent Manager, Hurren & Hope

Ed is the Talent Manager at specialist technical recruitment consultancy Hurren & Hope. A breath of fresh air in the industry, H&H prides itself on being an agency for clients and candidates who value relationships over sales patter. One of Ed’s areas of expertise is the FinTech sector.