February 17, 2016

Will 2016 be the year fintech goes mainstream?

Elizabeth is innovation and technology journalist at the Telegraph.

Smart Platform blog
When London mayor Boris Johnson said tech businesses are "sprouting up like dragon's teeth" around the capital, he wasn't exaggerating. A term for companies involved in the building of software to provide financial services, and covering everything from mobile payments to money transfers and loans, the fintech industry is booming.

London is home to some of the world's top financial technology companies, and money is pouring in from investors keen to capitalise on the fast-growing industry. The UK and Ireland accounted for more than two-fifths of fintech investment across Europe in 2014, with investment in the region jumping from $264m in 2013 to $623m the following year, according to consulting firm Accenture. The UK's status as a hotbed for fintech success was proven when payment processing company Worldpay debuted on the London Stock Exchange in October with a market value of £5m, making it the UK's largest IPO of 2015. Since then, the London-based company's shares have surged by a fifth to stand at around 311p at the beginning of February 2016. 

The industry has intensified since the financial crisis, as fintech firms rush to fill the gaps that traditional high-street banks aren't able to provide in an increasingly digital world. Because digital-led fintech companies have lower costs and are bound by less stringent restrictions than traditional high-street finance providers, they are typically able to offer better returns on savings at a time when interest rates are still at rock bottom. 

While London is home to the largest number of digital start-ups, regions in other parts of the UK are also attracting rising numbers of entrepreneurs and investors who are put off by the high costs of doing businesses in the capital. Places with a high student population, such as Cambridge and Warwick have a wide pool of young talent that is able to get a new business off the ground. The biggest fintech companies in the UK include money transfer service Transferwise, online investment service Nutmeg, and peer-to-peer lenders Funding Circle and MarketInvoice. 

Wealth Wizards, which aims to democratise pension planning by giving online investment and contribution advice, is another type of fast-growing fintech start-up. 

Wealth Wizards, which launched in 2009, advises users on the best pension investment funds suited to their circumstances at a fraction of the cost of using face-to-face financial advisers. LV=, one of the UK's largest insurance providers, bought a stake in the UK’s first robo-adviser last year. Finance has always been a key driver of economic growth in the UK, and the rapid rise of fintech companies has heightened the industry's importance. The Mayor of London estimates that 40% of the London workforce is employed in finance and technology businesses. Chancellor George Osborne said late last year that he wants London to become the global centre for fintech. "The race is on, but we're determined to win it," he told an Open Forum event at the Bank of England. Overseas investors are also taking note of the UK's booming fintech scene. Chinese technology and investment group Cocoon Networks recently announced it would launch a £500 million London-based fund to invest in European tech start-ups. Chinese investors see London as Europe's biggest tech hub, and a city that is providing strong competition to Silicon Valley in the US. Over the past nine months, 28 Chinese companies, worth £23 million to London's economy, have already pledged to set up in the capital, and the number is expected to rise to nearer 40 by the end of March. Fintech is likely to become even more accessible to everyday consumers this year, following a number of Government changes that are due to come in from April. 

The Financial Advice Market Review, expected to report in the first quarter of 2016, will bring online advice and investment services to the attention of more consumers. Meanwhile, a new ISA will launch in April that will allow savers to invest more than £15,000 tax-free into 'innovative finance' providers. The new ISA could give potentially higher returns than ordinary saving ISAs, while peer-to-peer lending companies will benefit and grow from higher investment. Fintech has become a key driver of growth in the UK, and confidence in the sector is growing. 2016 will see a flurry of activity as investors scramble to become more involved. Wealth Wizards has been nominated in the European FinTech awards for the most innovative and disruptive companies.

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