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What does the rapid growth of fintech outside of London mean for our capital’s status?

Since the emergence of fintech, London has been the global powerhouse for a number of reasons - an impressive tech infrastructure, great access to talent and a supportive government have each played a part in creating a hub in our nation’s capital.

The FCA has recognised London’s potential in this arena for many years, and has now begun to capitalise on the benefits by creating so-called ‘FinTech Bridges’ with emerging fintech economies such as Singapore, and most recently, the Republic of Korea. These connections allow the FCA to work alongside other national regulators to reduce barriers to entry, and share information about innovations in the financial services industry across the global marketplace.

Bolstering London’s success in this sector was crucial following the UK’s vote to leave the EU. These fintech bridges with Singapore and Korea will undoubtedly improve our access to talent should we lose access to the single market, in addition to growing our existing customer base and external funding. As the UK’s post-Brexit plans fall into place, these connections could prove to be vital for strengthening London’s position.

The Brexit effect

The majority of fintech regulation, as with financial services more generally, is aligned with legislation coming directly from the EU. Regulatory misalignment is a possibility following the Brexit vote, which could consequently affect cross-border activity and encourage fintech firms to relocate outside of the UK. With the FCA’s progressive approach in terms of adopting fintech, it is hoped that gaining market authorisations to operate across the European market will happen quickly and easily once the UK’s status has been established.

A large percentage of London’s human capital also comes from the European Union and beyond. Given that Britain’s position within the EU is still unclear, this surge of talent may decide to move elsewhere, should other fintech hubs become as prominent as London is currently.

Frankfurt is usually cited as the alternative financial centre, should London eventually become too costly. Whilst it is still favourable in terms of global time zones, replicating the sheer size and scale of London would be difficult - plus, London has a dedicated fibre optic line to Wall Street, which is undoubtedly a benefit to firms in The City and beyond.

Growth on a global scale

Across the world, a range of smaller fintech hubs are starting to emerge. Whilst areas in the US and Asia are becoming more prominent, an interest in fintech has also developed in Tel Aviv and Australia. The rise of areas outside of London could see a movement towards a range of fintech hubs across different continents, with the UK as its centre.

The Asia-Pacific, or APAC, region is currently dominated by China and India, and is growing rapidly thanks to newer areas of fintech. InsurTech, RiskTech and RegTech are all younger technologies within the wider fintech space, which work in collaboration with traditional financial services firms. This marks a distinct change in the fintech landscape - firms in certain areas are no longer scaling up to compete directly with traditional firms, but are looking to collaborate and thrive as a combined offering.

Creating partnerships with areas thriving in this new collaborative space will help the UK fintech sector to innovate and grow, and will be crucial for fostering fintech innovation globally.

Promise in the UK

In the UK, and more specifically London, the FCA’s regulatory sandbox and its ‘Project Innovate’ initiative are both attractive prospects for new fintech firms. Each makes it simpler for fintech start-ups to test innovative products before they go to market, whilst ensuring that consumers are protected appropriately. ‘Project Innovate’ as a whole is designed to promote competition through disruptive innovation in the financial services sector, of which fintech clearly plays a prominent role.

The fact that the FCA supports fintech is nothing but a positive for London’s position as a leading hub in this industry, regardless of competition coming from abroad. English being the world’s business language undoubtedly works in our favour, but we also have a huge market for opportunities, funding and talent that we are able to tap into. Whilst it could be the case that the world’s fintech market becomes one inter-connected hub, with London at its centre, the UK will still come up trumps by developing these crucial partnerships with emerging centres to strengthen its existing prowess in this sector.

Aamar Aslam, CEO of Funding Invoice