It is reported that Zilch has established a partnership with Mastercard for its services. Philip Belamant, Zilch founder and CEO, told the media, “Zilch ensures that customers never over-borrow by making use of Open Banking and AI to determine each customer’s level of affordability and only funds low-value discretionary purchases. As a result, Zilch’s customers rarely default and make use of the product as a cash flow management tool, which has proven to be of huge value during this COVID period.”

More recently, the fintech has built significant traction among millennials and the Gen Z market. It has been growing by more than 10,000 new customers a month. Now Zilch customers have the facility to pay over time across big brands like Amazon, eBay, Ali Express, Nike and much more, media reports said. Joanne Dewar, Chief Executive Officer of Global Processing Services, told the media, “We have been working closely with Zilch to support their unique processing model, and are excited about their promising growth in the space. We look forward to working closely with them as they continue to scale.”

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The UK fintech scene as Brexit looms
The UK finally withdrew from the European Union earlier this year. However, both parties have entered a transition period that will give them time to work on a new trade agreement. In 2019, a report published by Robert Walters — one of the leaders in recruitment for financial services and technology revealed that fintech firms in the UK received the highest amount of investments in Europe, accumulating $48 billion worth of investments.

However last year, around 275 financial firms moved a combined total of $1.2 trillion in assets out of the UK to other parts of Europe, a report showed. Dublin alone accounted for more than 100 relocations, while Luxembourg had 60, Paris had 41, Frankfurt had 40 and Amsterdam had 32. That said, a report published by Bovill showed that around 1,400 EU-based firms have applied for permission to operate in the UK after Brexit, with over 1,000 of those planning to establish their first UK office, which seems positive for the country in a post-Brexit setting.

Earlier this year, German neobank N26 informed its customers that it is closing its business in the UK due to Brexit. According to the neobank, it no longer has a licence to operate in the country post-Brexit — and will close all accounts on April 15.

In this context, the neobank has asked its customers to transfer its assets to alternate accounts. N26 started its business in the country just five months prior to its exit. Brexit has encouraged investment banking giants such as Bank of America Merrill Lynch, Citigroup, Goldman Sachs and JP Morgan to shift a significant proportion of their operations to Europe.
A report published by EY said that Deutsche Bank has shifted €400 billion from its balance sheet to Frankfurt, while JP Morgan moved €200 billion to Germany. Another report by thinktank New Financial found that 332 financial services firms have already moved jobs out of London because of Brexit.

Tom Bull, head of UK Fintech at EY told International Finance, “While some fintechs have moved parts of their financial assets out of the UK in preparation for Brexit, over the past few months we have seen a noticeable pause on firms announcing any operational changes to their businesses, as relocation announcements have dwindled. When it comes to the impact this has had on the country’s business landscape, our data suggests that firms have built out the infrastructure they need on the continent to ensure they will be able to serve clients once Brexit happens — be that with or without a deal.

“While fintech is still seen as a major foreign direct investment attraction for the UK, Brexit has pushed many fintech firms to create optionality in their business models by considering other locations for parts of their business. Going forward, firms are likely to be focusing on fulfilling their commitments to regulators in the EU and the UK to establish their new operations, while also deciding whether to operate multiple hubs across the Eurozone and in the UK or consolidate and restructure operations.”

It is quite evident that Brexit will significantly change the financial services which includes fintech significantly in the UK and especially London. Changes are expected when it comes to regulations, trade deals and investments. However, how big and impactful the changes will be remains to be seen.

London continues to be the fintech capital of Europe
London is now dubbed as the fintech capital of Europe. The number of startups and companies in the city have grown significantly — creating a positive impact on its fintech landscape.
It is reported that job creation has also increased over the years. According to London-based recruitment firms operating, job creation has increased by 61 percent over the past year. This growth is making financial technology the fastest growing sector in the city.

Interestingly, the fintech sector in the UK has continued to progress since the Brexit vote. The UK has always encouraged innovation, creating a surge of growth along with corporate friendly regulations and less bureaucracy, thus increasing investment opportunities for both local and foreign investors. This in turn has helped fintechs in the region grow at a fast pace. Brexit, on the other hand, seems to be limiting the growth of UK fintech companies working with European companies, especially with trade and employment becoming a cause for concern.

Experts believe that London will continue to the fintech capital of Europe despite the changes that Brexit will bring to its business landscape. In fact, Brexit might foster fintech growth in Dublin, Amsterdam and Frankfurt for that matter.

“At this point in time, no solid alternative has emerged to challenge London as the preeminent financial hub in Europe. London remains the most attractive destination for foreign direct investment in Financial Services, securing 67 projects in 2019, more than double that of Paris, the second most popular city with 29 projects,” Bull explained. “London’s dominance as the preeminent European financial centre remains unrivalled, however there is competition from financial centres around the globe and as such, we should not be complacent about London’s position as a top financial hub.”

Talent crunch might not take place
Many in the industry worry that the UK could find it difficult to get the right talent following its exit from the EU amid the potential loss of passporting rights. However, it is very unlikely that the UK will go through a talent crunch post-Brexit. The UK being a key financial services centre houses famed universities and demonstrates an impeccable academic culture.

Certain fintechs are likely to choose to set up in an EU country rather than the UK, thus potentially drawing talent to particularly EU cities and fintech hubs. Even though many fintechs are moving their businesses out of the UK to the European Union, they are still likely to retain some part of their business in the UK. Many fintechs have also moved some part of the financial assets out of the UK. Many of those fintechs will only establish a small presence in a new EU market and look to maintain their current UK operations. As such, roles and opportunities should remain in the UK, which should continue to prove attractive to talent. The evident changes will be seen in the mix of the talent pool driven by the impact on immigration both into and from the EU as a result of Brexit.

The UK government had assured companies operating in the country that it will support retaining talent post-Brexit. In fact, skilled employees will be given the rights to remain in the country because of their skillset and vast experience.

Fintech investment in a post-Brexit setting
The big question is whether investors would show the same interest in British fintech startups post-Brexit? Even though Brexit negotiations have been ongoing for the last five years, investors have not shied away from investing in UK fintechs. Despite looming Brexit uncertainties, investments in UK fintech startups have expanded by nearly 500 percent over the past five years, eclipsing the investment growth of 170 percent recorded by the US in the same period. The UK also outperformed the rest of Europe which recorded a 133 percent increase. This implies that investors are still willing to invest in the UK despite those uncertainties.

Investors will continue to invest in fintechs in the coming years due to financial services requirements transitioning toward a digital, cloud-based industry.

A noticeable trend was observed in the UK fintech with ground-breaking investments worth $4.9 billion, which surpassed $3.6 billion record in the previous year and catapulting the country to second in the global rankings for venture capital investment.

UK fintechs have attracted huge capital and completed significant deals than the rest of the top 10 European countries combined. Seven of the top 10 deals in Europe involved UK fintechs. Greensill led the way with an $800 million round and OakNorth with $440 million. However, the scene on the continent saw its own impressive growth with total investment hitting $8.5 billion, up from $5.7 billion. German digital bank N26 raked in $470 million, with payments outfit Klarna raising $460 million.

“Investor sentiment from April this year suggests that the UK financial sector is in a strong position to adapt to the changes and continue to be a leading destination for overseas investment — with fintechs being no exception. How this continues after Brexit will depend on a number of factors, such as the incentives the UK will provide for foreign investors and the trade deals that will be negotiated with new countries. However, the UK is likely to continue driving growth in the sector,” Tom concluded.

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While most of them are worried about their next round of funding, a few are considering to diversify their revenue and one-tenth plan to wind up their business.

Charlotte Crosswell, CEO of Innovate Finance, told the media, “It’s evident that the fintech sector faces a significant funding gap as a direct result of Covid-19. We need to act fast before it’s too late. If we fail to address this, we risk losing many companies in the fastest-growing sector in the UK economy. We cannot turn our backs on the start-ups now or we will pay the price later down the line.”

Although fintech is emerging in the UK, crisis such as the coronavirus pandemic and Brexit is affecting the industry’s growth rate. Previously, the startup economy in the country was flourishing with investors seeking to invest their money in new projects. In fact, investors in the industry last year was almost doubling on top of levels recorded in the second half of 2018, media reports said.

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It is reported that the UK comprises more than 1,600 fintech companies. It is recognised as one of the most accomplished fintech startups in the world with $4.9 billion of capital raised in 2019. This has exceeded $3.6 billion raised in 2018.

Nick Williamson, CEO of Qadre, said in a statement, “The UK has one of the world’s most successful fintech markets, but company founders are facing unprecedented economic headwinds with Covid-19 at the eye of the storm. At this time of uncertainty, equity management processes are preventing fintechs from raising money, delivering new services, and growing their business. Equity management isn’t just inconvenient, it is damaging UK fintech. It has never been more important for fintechs to streamline unnecessary tasks and focus on developing products and services that can help them ride out this storm.”

Besides the pandemic, the study pointed to equity management as another reason upsetting the UK’s fintech boom. It appears that more than 67 percent of fintech founders in the country see equity management as a distraction slowing down innovation and affecting operational resources. In addition, the Covid-19 pandemic has worsened their situations in many ways.

Recently, the UK government launched a €1.4 billion initiative to support the country’s most innovative SMEs and startups at this time.

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Then came along the big shocker – Brexit. The economic impact of Brexit was speculated far and wide. Even now, British politicians are panning out how this can affect the economy but its hard to tell how this will affect UK’s financial services industry. The impact of Brexit on UK’s economy cannot be overlooked – net migration of EU citizens into Britain halved in the 12 months to September last and investors are worried that the UK has lost its sheen as a professional destination. Data from Google has suggested that young professionals are not as enamoured to look for jobs in the UK as compared to the late 2000s, even during global recession. Bank of England governor Mark Carney has said Brexit explains the weak growth in investment in Britain.

However, a report in PwC has stated that the impact of Brexit on early stage fintech startups is minimal. Shortly after UK’s decision to leave the EU, there was a lot of buzz about European cities like Berlin and Paris becoming the next fintech hub in Europe. But the PwC report finds that despite Brexit, the country’s fintech scenario is looking up. Some examples include the London FinTech “bridges” forged with China, South Korea, Singapore, India and Australia. Japanese firm Softbank, meanwhile, has said the headquarters for its £80bn technology investment fund will be located in London, which is an encouraging sign for investment.

Meanwhile, the focus on the fintech industry has begun to shift even outside of central London. UK’s greater Birmingham is now the largest cluster of any UK city outside the capital. This increase is being driven by firms such as HSBC, KPMG, PwC and Deutsche Bank expanding their presence locally. Smaller digital and cyber security companies are capitalising from this emerging global BPFS hub as companies look to local experts to help deal with new technology challenges and cybersecurity threats.

There has been a 20% increase in the number of companies since 2010, with the total number of fintech companies now standing at over 2,145. Birmingham is home to 13,135 BPFS firms, more than any other UK city outside London, with the sector generating £13.2 billion per year.

PwC’s latest survey economic crime and fraud revealed cybercrime to be the most prevalent type of fraud experienced by organisations, affecting half of respondents. 42% of businesses expect this to continue to be the most serious, in terms of business impact, in the coming two years.

Nicola Hewitt, Commercial Director at the West Midlands Growth Company, said: “Greater Birmingham is very well-placed to respond to the technological challenges that are emerging every day, with incredibly talented employees specialising in cybersecurity being hired by local firms. Greater Birmingham has the largest number of tech start-up incubators and accelerator hubs outside London. This, combined with the largest regional BPFS and technology sectors, has created the ideal environment for new and established fintech businesses”.

Specialist insurer Beazley is expanding its presence in Birmingham as part of its drive to grow its UK regional insurance market activities. The company’s Birmingham-based underwriters will be among the first employees to occupy new, state of the art offices that will also house Beazley’s out-of-London operational support centre for its UK and European business.

Ian Fantozzi, Chief Operating Officer at Beazley, said: “Birmingham’s position as financial services hub and its rich talent pool made it the obvious choice for Beazley to build an operational base outside London.”

Smaller firms in Greater Birmingham are also looking to meet the demand from global businesses for expertise in financial services technology. This has resulted in a burst of new technology businesses such as Falanx, a tech SME specialising in cyber defence and intelligence services. The firm relocated to Birmingham from Reading as it was attracted by the recent regeneration and investment pouring into the region.

Jay Abbott, Executive Director of Falanx, said: “With oversaturated tech hubs in the south of the UK, Birmingham has opened a lot of doors that would not have ordinarily opened for us. The access to talent that the city offers has allowed us to cultivate our cyber security services and focus on innovating technology in a fast-moving, cutting edge space.”

The region’s world-class universities provide the perfect platform for budding tech entrepreneurs to grow, with Birmingham City University specialising in areas such as data mining, cloud networks and the Internet of Things. Greater Birmingham’s expertise in this field is ensuring that the talent developed at these universities is being retained by Birmingham’s businesses.

Tim Kay, Director and Digital Lead at KPMG moved from the firm’s London office and has seen first-hand how Birmingham’s booming tech sector has transformed the region: “With tech, you can’t be subscale. You need to be big enough to compete with cities like Barcelona and Berlin, and Greater Birmingham is well placed to do that. One of the reasons KPMG has done so well in the region is due to business demand. An unparalleled number of BPFS firms are increasingly turning to us to advise them on everything from data analytics to GDPR regulations.”

The UK’s tech talent is increasingly looking to locate to the region – attracted not only by the city’s career opportunities, but by the high quality of life that Greater Birmingham offers. The average salary in the West Midlands grew at the fastest rate of any region last year, including London, with this competitive salary offerings inciting businesses and individuals alike to flock to the region.

Recently, UK’s Cass Business School signed a deal with Chinese based accelerator BGTA and Chengdu Financial Group to establish a fintech trianing centre and develop a fintech summit. Cass Business School, as part of this deal, will help with the research and development of a fintech centre to educate professionals. Dimitrios Fountas, Business Development Director at Sir John Cass Business School, added: “Cass, with its long tradition of delivering expert-led financial education, and network of key technology partners, have supported the growth of London’s fintech ecosystem in many ways. Through our partnership with the Chengdu Financial Holding Group and BGTA, we are keen to support Chengdu in realising its vision of becoming a global fintech hub and stand ready to respond to a steady demand for training courses going forward.”

These developments point to how even a major political shake up like Brexit has kept the UK’s fintech sector relatively safe. UK leads the way in financial innovation, and appears to want to maintain that caveat for years to come.

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