Written by Michelle Stevens
Michelle Stevens takes a look at the capital’s thriving FinTech scene
It’s official – London’s tech scene is booming. From Level39 in Canary Wharf to Tech City in Old Street, the capital’s accelerator spaces are bustling with digital innovators. And growth in the sector is in no small part down to the burgeoning number of financial technology startups, with homegrown businesses springing up in the city and international newcomers choosing the city as their base. The latest figures from London & Partners show that a record 90 foreign technology firms set up shop in London in 2013. A recent report from Accenture also confirms that the UK and Ireland is the fastest growing region in the world for FinTech investment. The study reveals that since 2008, the value of this type of investment in the UK and Ireland increased nearly eightfold to reach $265 million in 2013, with the majority of transactions concentrated around London. The two countries’ combined annualised growth rate of 51 per cent is nearly twice the global average (26 per cent), and more than double that of Silicon Valley (23 per cent).
The UK and Ireland now accounts for more than 53 per cent of all such investment in Europe, meaning London can lay legitimate claim to being the “FinTech capital of Europe”, according to the research. Julian Skan,
Accenture’s head of banking for Europe, says of the market: “For a relatively new sector, FinTech is developing fast. There are a growing number of incubators and accelerators, and increasing interest among both the big banks and the venture capital community. But there are still challenges to overcome,” he cautions. “It is harder to raise funding, and entrepreneurs are less focused on commercialising new ideas than in the US. It is also difficult for small entrepreneurial companies to gain entry to big global banks.”
In a bid to tackle some of the challenges that startups face, Accenture has spearheaded the FinTech Innovation Lab. Already established in New York and now in its second year in London, the scheme provides support and mentoring from 12 major banks to a shortlist of early-stage FinTech companies. Firms which have been selected this year include Erudine, FinGenius, Logical Glue and PixelPin from the UK, PhotoPay from Croatia, Squirro from Switzerland and uTrade from India. This 2014 intake are developing financial services applications that range from one-tap mobile payment solutions, to artificial intelligence, and using photo touchpoints to log in rather than a pin number. The majority of participants in last year’s programme went on to sign business deals with banks for their products, and have raised $10 million between them in new financing. Among 2013’s contenders was cyber intelligence business Digital Shadows, which says that the experience was fundamental to its current success.
“It was really great for us, because we got to try out the technology that we had been developing for 18 months with a group of the world’s biggest banks,” explains CEO Alastair Paterson. “We managed to win a number of those as clients, and having done that we were able to raise the investment that we needed to expand the team and build other things. The number one thing it gave us was access to the key banks that we needed to reach. When you are a small company on the outside banging on the door of these huge institutions it is incredibly hard to get in, and even if you do, reaching the right person is really difficult.”
Digital Shadows is just one of the small FinTech companies based in Level39, the accelerator hub in the lofty heights of Canary Wharf’s One Canada Space. Last September the firm – which is hoping to reach a headcount of 30 by the end of 2014 – became the first to outgrow its initial office and move to Level39’s High Growth Space on floor 42. Paterson says that being based in Docklands’ financial centre and surrounded by other similar startups has been an advantage. “The events that are running here and the amount of introductions that get made from being here are really helpful. It’s a great environment, and you get all the benefits of a startup hub with the professional space and contact that you need with the financial sector.”
Level39 held its first anniversary celebrations in March, which included a fireside chat (yes, it was a virtual fireplace) between Eric Van der Kleij, the head of Level39, and Gerard Grech, the new CEO of Tech City. Grech was confident about London’s increasingly prolific role on the international digital stage and the reputation of its growing tech communities.“Tech City in general is now very much on the global map,” he explains. “Having spent time in New York it’s amazing how many US companies have become aware of what has been going on in London over the past three years, which you could argue maybe wasn’t the case five years ago, especially in the Valley.”
But despite London’s growing prominence, access to finance after seed rounds continues to be an issue. While angel investors and venture capitalists are active in the UK, and events such as Finovate allow startups to showcase their new innovations to a FS audience, Series A funding can still be hard to secure, particularly from overseas investors. Grech also highlighted the initial pilot results of Tech City Pulse, his organisation’s new tracker survey of digital entrepreneurs, which found that raising finance at the right stage of development was still the biggest hurdle for 40 per cent of respondents. However, despite this, 98 per cent of those canvassed intended to hire more people over the next 12 months.
Grech added that now Tech City’s remit had been expanded outside of London to include the rest of the UK, engaging with senior government advisers would be key to influencing national policy in this area. Although hopefully it’s a job that will be made easier by the fact that the UK’s flourishing tech sector already appears to be firmly on the government’s radar; with the Technology Strategy Board supporting London’s FinTech Innovation Lab, as well as running the Severn Valley Cyber Launchpad programme, which recently provided a cash injection of £500,000 for seven emerging cyber security firms.
London Mayor, Boris Johnson, is also championing this summer’s inaugural London Technology Week, set to be held on 16-20 June, which will feature over 200 different events. “Throughout the week tens of thousands of the industry’s top tech professionals will flock here to share brilliant new ideas, build business relationships and help cement London’s position as a top global tech hub,” espouses Johnson.
But while the capital takes most of the tech plaudits – and attracts much of the investment – it’s not all about London. There’s DigitalCity in the Tees Valley, tech clusters in the Severn Valley, Edinburgh, Cambridge and Cardiff, and accelerator spaces for startups dotted all across the UK, accessible through organisations such as TechHub and Innovation Warehouse. London may well be leading the charge, but the rest of the UK is determined not to be too far behind.