Post-pandemic, UK-based fintechs have had to navigate tough economic conditions, and staffing challenges – while many experienced close calls with the collapse of Silicon Valley Bank and are still struggling with the realities of post-Brexit challenges.
As fintech funding experiences a slowdown, the UK, the ‘fintech capital of the world’, has remained resilient – partly thanks to fintech hubs in England; most notably London and Manchester. But for how much longer will Scotland’s fintech ecosystem remain in the shadows?
Scotland’s fintech sector is certainly not looking to stand still. One independent cluster body FinTech Scotland was formed to help establish the country’s position as a top five global fintech centre.
The organisation published its strategic FinTech Research and Innovation Roadmap in March 2022, highlighting how the whole of the UK could accelerate its fintech ambition through research and development (R&D) and targeted innovation.
Roadmap success: One year on
One year on from the publication of the roadmap, Scotland’s fintech sector has already experienced positive changes and growth.
By the end of the ten-year period set out, the roadmap’s aim is to have delivered over 20,000 more fintech-related jobs. It also sets out a goal to produce an increase in economic gross value add (GVA) through fintech innovation: from today’s £598million GVA to £2.1billion GVA by 2031.
Strides have already been made to this end, with FinTech Scotland revealing it is “on track” to hit these targets for economic growth. Scotland has seen investments totalling around £83million into fintech companies which focus on financial regulation innovation in the last 12 months.
A 26 per cent increase in the number of fintech firms developing innovative solutions using open banking; a 19 per cent increase in Scottish fintech companies developing payment solutions; and the number of fintechs focusing on climate finance doubling are just a selection of the highlights from a successful year amid economic uncertainty.
Nicola Anderson, CEO of FinTech Scotland, said: “By enabling collaborative innovation across the fintech ecosystem not just in Scotland but the whole of the UK and beyond, we can see how the FinTech Research and Innovation Roadmap is already making a real difference – helping businesses to build economic growth, create jobs, work through climate finance to enable a future net zero economy, and helping to alleviate the cost of living crisis.
“The FinTech R&I Roadmap demonstrates how collaboration and innovation can change people’s lives, driving positive outcomes for both business and citizens both in Scotland and across the UK.”
Competition with London
March 2023 saw Jeremy Hunt reveal plans to deliver 12 new investment zones, across England and at least one in each of Scotland, Wales and Northern Ireland in the government’s latest budget. Each zone will receive £80million over a five-year period. The move came as Hunt explained an aim to “supercharge growth” across the entire UK – alongside another pledge to share £100million of funds across Glasgow, Manchester and the midlands to bolster research and development centres in these regions.
Although these plans outline further support for Glasgow, much more needs to be done to specifically ensure the growth of Scotland’s fintech scene. If Scotland wants to close the gap to England’s capital it cannot rest on its laurels.
Jack Prenter, CEO of financial education provider DollarWise, explained how Scotland must ensure it remains competitive with London: “If London-based fintech firms win the majority of the UK market then Scotland will lose market share relatively and therefore jobs. It’s incredibly important that Scotland invests heavily in this industry and I believe it needs to compete with London. That’s the reality of the situation and currently, it’s still behind.
“For Scotland to succeed in this area it needs to become a desirable place for top talent to live and build their businesses. That means partnering with universities and incubators to create desirable working environments. Otherwise, that talent is going to go to London, NYC and California.
“Most importantly, Scotland needs to cultivate a strong VC and investment industry. If founders can easily find funding in Scotland, they will stay there and build amazing businesses. I believe the most important factor in turning Scotland into a fintech hub will be bringing VC capital into the country -making it easier to find and invest in new startups.”
‘A coming of age for Scottish fintechs’
Thomas Gillan, CEO of Edinburgh-based payment orchestration platform BR-DGE, explained the areas Scotland can lean into to further encourage growth. He said: “Scotland has a rich heritage in financial services which has enabled the development of a flourishing fintech sector north of the border.
“We have a deep talent pool, underpinned by our world-leading university system, and founders now have strong ambitions for international growth. In the years ahead, we should see a coming of age for Scottish fintechs as the ecosystem matures and takes a leading role in shaping the future of global finance and technology.
“Behind this ambition is several attributes accelerating the ecosystem’s growth. There are a number of successful start-up incubators giving founders the right tools to develop exciting innovations and access early-stage investment.
“Firms are also supported by increasing collaboration between the public and private sectors, the university system, and cross-sector initiatives such as Converge, Edge, and Fintech Scotland.
“Founders also have access to Scottish Development International and Global Scots which are both vital partners for international expansion. In addition, hybrid working has definitely helped with talent acquisition, helping firms draw on wider resources and scale their businesses directly from Scotland.
‘Room for development’
While Scotland has obvious potential, Gillan also explained how more still needs to be done to foster growth, and highlighted the areas that may need the most support.
He explained: “Whilst foundations are in place for future growth, there is room for development. Early-stage companies are well-served by angel investors and VCs. However, there is a later-stage investment gap for companies at Series A and B onwards with a limited pool of investors. Strengthening the Scottish market for later-stage venture capital is vital to supporting the growth ambitions of Scotland’s fintech founders. Founders I speak to also have high ambitions but Scotland’s fintechs need to be more vocal about their successes. If not, the nation’s clusters will undoubtedly be outperformed by their international peer group.
“Looking forward, Scotland’s fintech ecosystem is well-positioned for continued growth and success. There is huge untapped potential which, in the right conditions, will turn Scotland into a global hub for fintech.”