Finance and technology are almost indivisible. Nowhere comes close to London in terms of dominance as a financial centre and, by extension, a fintech hub.
Activity in the sector has really exploded in the last half decade. Inward investment to London has doubled since 2014 and it was the leading sector for investment in 2017. UK fintech attracted a record £1.34 billion VC funding, double the amount of any other European country.
That is why some of the most exciting fintech companies in the world, like R3, a consortium of over 200 banks and funds building a blockchain for finance and business, are building right here, in London.
This city has been the beating heart of international finance for centuries. The Bank of England was the second central bank in the world and provided the financial flexibility which would be the foundation of the Empire’s power and which has pertained to this day.
Towards the turn of the millennium, the “Big Bang” reforms of the 1980s complimented the infrastructure and expertise which had evolved from running the Empire and led to London becoming the model for global financial administration. Only in a city with London’s concentration of intellectual capital would this have been possible.
So while our cousins across the pond had to deal with the bureaucracy and the restrictive regulation of the Sarbanes-Oxley Act, we didn’t. Companies simply decided to avoid the hassle by conducting their business in the US and listed their stocks in London where the people and skills were ready for them.
London also holds a unique position in terms of our legal environment, M&A expertise and even our timezone which, even today, remain important factors.
Financial professionals are redefining fintech
Fast forward and these advantage carry over into the fintech sector. There are now legions of financial market professionals and traders moving into fintechs, working with the designers and coders.
Many of my clients are former desk heads or former heads of market data – they have had successful careers but had spotted opportunities to apply technology to improve what they do. These people are bringing their knowledge of the markets, instruments and the complexities of international regulation to the table.
Just because London is the undisputed home of fintech today, doesn’t mean that is always going to be the case. I see a couple of threats on the near horizon that need dealing with to stay on top.
Brexit is an obvious concern. We simply must make sure that we remain open for business and be seen to be open for business. I do not agree with the former Foreign Secretary’s reported view that business should go “reproduce” with itself.
If the final deal jeopardises the status of London in the global markets there’s more at risk than just transactions going elsewhere. This is about a concentration of talent and access to capital. The way the UK makes relationships with other countries and structures its own agenda in the run up to Brexit will be key to its success.
London’s talent pool
So Brexit is clearly a risk, but I don’t actually think it’s the biggest risk to London. I think the biggest risk is that it becomes a victim of its own success and unaffordable or unattractive for people.
This city has been undergoing its own version of what scholars of US cities have termed “the Great Inversion”. This is the return of people, high-end housing and highly-paid jobs to city centres.
Inner London’s growth was in part fostered by the ability of creative people from various fields to cluster together and share ideas.
If inner London becomes too expensive these people will go elsewhere. In inner London there may soon be only two types of people left: the wealthy and those who are in social housing. This will be a problem.
London needs to be good for both business and for people and their families. That means ensuring individual and corporation tax is sensible and that families can afford to live in a capital with effective services.
Word to the risk takers
Some final words of tribute to the fintech risk takers who have put their time, their own and their investor’s money, plus a whole lot of coffee and sleepless nights into their concept, design and build.
If you’re doing it in the wholesale markets space, you’re competing for attention in the face of an established tech infrastructure, highly resistant to change. It’s tough, but ultimately the USP of your platform or offering will do the talking. Never give up. Get it right and you will change a – part of this business world for the better.