London may overtake San Francisco as global FinTech hub

The 2008 Global Financial Crisis (GFC) was a turning point in the traditional financial services sector. Banks and other financial institutions turned their focus to reducing risk and minimizing costs, which resulted in widespread downsizing. In the UK alone, 100,000 people lost their jobs in the fallout of the GFC, representing a seven percent decline in the financial services workforce.

Innovation versus tradition

The vacuum that resulted from the contraction of the financial services sector eventually provided the conditions required to create new business models. Innovators created new solutions predicated on a combination of financial services and technology, what we call today, FinTech. Initially dismissed by the traditional financial industry, FinTech has become a substantially profitable sector. Today, banks and other legacy financial institutions are attempting to introduce services and products that can compete with those offered by the FinTech sector.

There are currently 29 FinTech unicorns globally. The success witnessed by these firms, as well as the second wave who are starting to generate significant profits, is contributing to a new hiring surge across the greater financial services sector. The Robert Walters report found that, “IT is now constituting over 30% of professional roles in the sector, up from 24% in 2017, with this projected to increase further.”

Additionally, banks are attempting to co-opt the technological innovations pioneered by FinTech firms to better their offerings. The lines between the traditional and the new are increasingly blurred. Furthermore, in the EU, FinTech companies are now able to apply for, and acquire banking licenses, provided they meet the prerequisite requirements. One such FinTech startup is the mobile banking solutions provider Revolut. Banking licenses allow FinTech firms to guarantee customer deposits, providing the security demanded by traditional banking customers.

The FinTech wave revealed a gap in the market with regard to digital offerings. Traditional financial services focused on brick and mortar services while FinTech firms leveraged increasing Internet connectivity, and millennial smartphone-loving culture, to provide digital-only offerings.

Robert Walters found, “E-money firms grew by 51% between 2017 to 2018, and it is predicted that by 2020, over half of payment service providers in the UK will be digital-only. This indicates a phasing out of traditional banking practice as digital becomes the cornerstone of the financial services sector.”

While it is true that the lines between the traditional financial industry and the FinTech sector are becoming harder to distinguish, banks are worried that they may not be able to compete with the products and services offered by the more nimble FinTech firms. As a result, Robert Walters opines that banks may begin to acquire FinTech firms as a response. Ultimately, banks will have to switch to customer-centric offerings with a digital flair if they are to effectively compete in the new age of financial services.

The increasing role of Fintech in the UK economy

In the UK, mirroring the aforementioned global shift, the rise of the FinTech sector has impacted the greater financial industry. The report states, “Over the last five years, the rise of FinTech has had a profound impact on the UK banking sector. So much so that traditional banks increasingly see their core revenue streams coming under attack.”

FinTech firms are leveraging technology to provide the public with the services they need while promoting ease of use, accessibility, and affordability. The services offered by FinTech firms are typically available at the push of a button on a mobile phone. Additionally, these firms typically charge substantially fewer fees when compared to banks. For instance, TransferWise, a cross-border money transfer service and one of the UK-based unicorns, is significantly cheaper than most banks.

While the traditional sector plays catch up, recruitment in FinTech is growing. Although FinTech employment opportunities are still less than in the traditional financial sector, FinTech has much faster growth rates. Robert Walters found, “The (FinTech) sector created 61% more vacancies in 2018 compared to 2017, making it the fastest growing sector in the London economy. The growth is also felt at a regional level, where job creation increased by 18% last year.”

Hiring activity for the FinTech sector focuses on IT professionals. Between 2017 and 2018, the demand for IT professionals increased by 74 percent. As the FinTech sector expands, firms need to grow their teams. Developing new digital offerings, with high quality UI/UX, requires experienced professionals.

In this regard, traditional banks are also lagging behind with a hiring rate of 17 percent compared to FinTech’s 82 percent. IT professionals who are most in demand in both sectors are software developers. Java developers, for example, are attracting a starting salary of £60,000 in London.

San Francisco versus London

There are 29 FinTech unicorns globally. Nine of these are headquartered in San Francisco, while seven are based in London. Moreover, London has cornered the European VC market with a third of all European VC funding being awarded to London-based FinTech firms. These factors combined with a good talent pool means that London may soon overtake San Francisco.

James Murray, the Director of Financial Services at Robert Walters, explained, “When spotlighting the UK’s leading FinTech unicorns, the income growth they have achieved over the past twelve months is phenomenal – increasing from a combined £77.1m to £177.6m revenue. That’s a revenue growth of 130% in just one year! Such is the growth of the industry, that in 2018 job creation within the FinTech space increased by 61%, making it the fastest growing sector in the London economy.”

Read the report here.