10 key trends in regional FinTech in the UK

In the second of a two part blog series, Julian Wells, Director at Whitecap Consulting, highlights 10 key trends evolving regional FinTech landscape that is forming in the UK.

Over the last 12 months there has been a marked increase in the level of interest from policymakers and business leaders in the FinTech economy outside London, both domestically and internationally.

During this time we’ve observed a number of trends and themes across the regional FinTech economy. In our previous blog we looked at individual regions, and in this piece, we reflect on some of the emerging regional FinTech trends.

Here, in no particular order of priority or magnitude, are some of the key points we’ve observed:

1. This is about working with London, not competing with it

London is always going to be the focus of FinTech in the UK, but

the wider UK FinTech economy can become an increasingly powerful force and this is one place where value can really be created. The regions offer a refreshing alternative to the now well established London FinTech culture. They approach problems in different ways and they often work on different problems to London, such as financial inclusion.

2. There’s not as much FinTech start-up activity as people think… yet

We’re regularly contacted by people looking to better understand the regional FinTech landscape, who ask for names of the FinTech start-ups in a particular city or region. It’s a harder ask than people might imagine, partly due to a lack of ‘lists or registers of such FinTechs, but also due to the simple reason that there is not a plethora of regional start-ups or scale-ups at the moment.

It is important to bear in mind that FinTech innovators don’t just come from start-ups, and can also be found in established organisations. We are now seeing an increasing trend of established companies not only building innovation from within, but also creating investment funds and accelerators to enable them to work with innovators more closely, and in a captive way.

3. Funding is a challenge

Regional businesses seem to find it harder to raise funding as the majority of FinTech savvy investors appear to be in London. Whilst there is funding available across the UK, the fact that early-stage support ecosystems such as incubators and accelerators are not currently as well developed in the regions may well be a contributing factor. There also seems to be a communication / awareness gap between funders and entrepreneurs in the regions, which creates a perception of a lack of demand for both parties.

Fear of failure is something that needs to be overcome by entrepreneurs and investors alike. It’s an area where we can learn much from the USA.

4. FinTech is not just about start ups, especially in the regions

The key difference between London and the regions is that the FinTech community outside the capital is mainly made up of established businesses seeking to embrace FinTech, rather than disruptive start-ups. This is where there seems to be a major opportunity for FinTech innovation in the regions. There are an increasing number of initiatives afoot to address this, with the launch of the NatWest / RBS FinTech Accelerators a significant development in 2018 (and one that Whitecap was delighted to be involved in).

5. Every city needs to develop its proposition

It’s more complex than London & ‘the regions’. All regions tend to place a high degree of focus on their access to talent and skills, both affordable and in large numbers (from sources including their universities), and their ability to offer high quality competitively priced working space. But what can be less clear is the extent to which they each have core competences in certain areas based on the heritage of the region.

The individual regions outside London have developed specific tech / FinTech capabilities that need to be better articulated and understood by the London FinTech ecosystem. For example Edinburgh’s strengths include asset management, the Leeds region has a considerable retail banking heritage and several of the largest building societies, Bristol is a hub of tech innovators and seems to have a growing number of blockchain entrepreneurs, Birmingham is now home to banking giant HSBC, and Manchester is home to many financial services companies with established and growing tech/op centres and has strengths in e-commerce and debt management.

We are currently undertaking some research in Leeds to help map out the ecosystem, which is an exercise we hope to conduct in other regions too.

6. The regions can be stronger together

There is a clear requirement for greater collaboration across the regions, beyond the established country and metropolitan lines. The recent announcement of the formation of a ‘Council for the North’ by the 11 Local Enterprise Partnerships (LEPs) is encouraging sign and will hopefully be the first of many such initiatives.

7. There is an increasingly amount of international interest

We’re now seeing an increasing number of international FinTech delegations coming to the regions as the focus of their trips to the UK, rather than tagging on a day at the end of a visit to London. This is really encouraging to see, because it seems the biggest issue the regions need to overcome with overseas investors is to educate them that there is more than London when it comes to FinTech.

From an inward investment point of view the regions need a coherent message mapping their specialisms with international FinTechs, to help create a compelling message. When multiple cities combine their strengths, as we are starting to see in the North of England and Scotland, this can be extremely powerful.

8. Financial inclusion is an emerging theme

Approximately 1.5m people in the UK don’t have a bank account, and 12% believe the Bank of England Base Rate is over 10%.

There has to be an effective way for FinTech to be a force for good, and we’ve noticed there seems to be more emphasis on the social aspects of FinTech in the regions than in London, where funding, growth and commercial aspirations seem to be more dominant. Again, this is a topic our friends at Tech Nation have covered in a recent podcast.

9. There’s a big debate around skills

Whichever city you are in, there is always a hot debate around skills. There are many angles to this discussion, including what seems to be a nationwide shortage of developers, as highly fluid recruitment market with inflated wages, and a strong desire to see an increasing flow of appropriately skilled graduates, apprentices and second / third jobbers. There is also the not inconsiderable challenge of training and retraining the existing workforce who are employed by banks, building societies and other financial institutions.

There can be no doubt that people have a critical role to play in the growth of the regional, national and indeed international FinTech sector.

10. The universities have a pivotal role to play

There is an increasingly active amount of interest and activity in FinTech from the universities. This includes the development of a number of Financial Technology post-graduate courses, as well as FinTech related research project work.

The universities need to adapt to working with local networks/ecosystems – including businesses and start-ups. In Boston the role of incubators has been marginalised due to the universities in nurturing concepts and ideas to the point where they can forge their own path as start-ups. Perhaps the UK universities will also increasingly look to take on this role. We have certainly seen strong interest from the Leeds and Manchester universities to support early stage FinTech entrepreneurs.

Closing thoughts

It’s clear that momentum is growing in the regional FinTech economy and various trends are forming. In this blog we’ve highlighted trends we’ve observed, but this is our perspective as a regional consulting firm and may not reflect the views and experiences of others.

Over the coming months we expect the evolution of regional FinTech to continue and for more regions to become clearer about their proposition and objectives. Over time, we also expect to see increasing collaboration between regions as the FinTech sector matures. It’s still early days for both, but we’re already seeing this in the North of England and also in Scotland.

This is the second in a two-part blog series – click here to read the first blog, ‘Regional FinTech developments in the UK’.

Whitecap Consulting are specialists in providing strategy, marketing and commercial consultancy. Read more about us