By: Charlie Conchie
Fintech founders and venture capitalists are not known for their pessimism.
The sector rode a wave of good vibes for a decade as funding flooded in, new firms sprung up and policymakers hailed it as the shining jewel in Britain’s financial services crown.
Then-Chancellor Rishi Sunak laid something like the icing on the cake last year as he threw his full-throated support behind making the UK a hub for digital assets.
But that optimism has faded somewhat. The industry has been rocked by the economic downturn of the past 12 months and the ripple effects of rapid rate hikes have hit fintech as hard as any sector.
As the great and good of the global industry gather next week for the ninth annual Innovate Finance Global Summit, they will for the first time in a long time be forced to contend with an unfamiliar shiver of doubt and uncertainty.
Still though, the chief of the fintech industry body Innovate Finance Janine Hirt is unphased.
“I actually think there’s an opportunity here for fintech to really lead the way on how we want our financial services to look going forward, and to make sure that the next chapter of financial services looks the way we want it to,” she tells City A.M.
“Fintech has a really important role in driving that more positive chapter.”
Continental fintech threats
That more positive chapter has looked uncertain at times over the past few months. The collapse of Silicon Valley Bank and its UK arm triggered fears of a wave of implosions across the sector.
That came after the sector had already been rocked by a year-long funding slowdown as sharp rate hikes turned off the taps of cheap money.
We have players here that are becoming substantial parts of the financial services system
Janine Hirt
However, as Hirt points out, the UK’s funding figures still look healthy when stacked up against international competitors.
British fintech firms bagged $12.5bn last year – an eight per cent dip on the previous year but still more than the next 13 European countries combined.
While much has been said of France smelling blood in the water and mounting a state-backed offensive to knock the UK off its top spot, Hirt says there is no imminent threat.
“A lot of the initiatives that are gaining attention in other European hubs are the types of initiatives that you do very early on to support an ecosystem, like Station-F [Parisian start-up hub], for example, whereas in the UK we have a real maturity of our FinTech ecosystem,” she says.
“We have players here that are becoming substantial parts of the financial services system that were once new entrants and fintechs. I think that’s the distinction.”
When people talk about what’s happening in Europe, she says, there should be a “nod to the fact that we are just in a much later stage of the game.”
Funding puzzle
Even with that superiority, solving the funding puzzle remains top of the agenda for Innovate Finance and the wider fintech industry.
A familiar gripe across much of the sector is that UK institutional investors are too conservative to throw their weight behind homegrown British start-ups. A major push is now underway, spearheaded by the Mayor of London with support from Innovate Finance to get more pension cash directed into the UK’s growth firms.
In a Powerful Pension report, authored last month, Innovate Finance and the City of London called for a pooling of £50bn of pension cash to be directed towards growth start-ups and fill the multi-billion dollar funding hole facing the sector.
Hirt says the debate will be at the forefront of next week’s summit and is essential to ensuring we don’t “rest on our laurels” as a country.
“Later stage growth capital investment and pension funds – that’s a very important piece of the puzzle,” she says.
Homegrown success
The pension campaign underlines a perennial question facing UK policymakers: how can we turn plucky start-ups into £10bn giants?
Commentators have already predicted those efforts could be under threat this year. A number of big name fintechs and tech firms have been picked off by bigger players, with pensions fintech Cushon snapped up by Natwest and GoHenry last week bought by US savings firm Acorn.
Hirt says the key challenge in the current conditions will be ensuing that firms can get the funding to become the acquirers.
“That means creating an environment here where UK firms can grow larger and scale,” she says.
The topics on the agenda at this year’s summit point to the reality of those challenges. Hirt says there will be a real focus on M&A and helping firms navigate and deal with the acquisition process.
Despite all the positivity, this will be a more circ*mspect gathering at the Guildhall than previous years. But Hirt and the fintech sector are looking positively at the future.
