Location, Location, Location, Where is The BEST Opportunity for FinTech in the UK?

80% of executives believe location is a key driver of business growth and a critical factor in gaining a competitive edge [1]. There is plenty of research to support this too. Von Thünen first theorised proximity advantages back in 1842, explaining how farmers are better off placing more perishable crops closer to the market, and balancing these higher associated rents with reduced transportation costs [2]. Since then, research into business proximity has progressed, highlighting the benefits on economies of scale, knowledge transfer, shared infrastructure and accessibility to stakeholders, even in a hybrid working world [3]. As a result, regional specialisms are formed; clusters providing unique advantages to the stakeholders within, derived from its unique set of characteristics.

Why is this especially important for FinTechs right now?

The UK is made up of many FinTech clusters, often overlooked due to the dominance of London and therefore many opportunities for FinTechs are often missed, such as regional grants, collaborative networks and potential partnerships. Furthermore, the UK FinTech sector is in the mist of catalysation. In 2021, HM Treasury published The Kalifa Review of UK FinTech, a strategy that outlines how the UK can capitalise on opportunities and maintain its global presence in the sector [4]. One of the four focuses of this strategy is to promote national connectivity, including nurturing the growth of key FinTech clusters, accelerating clusters growth through research and development, and the creation of the Centre for Finance, Innovation and Technology (CFIT), a central convening force for all financial services ecosystem participants, policymakers, regulators and academics. Subsequently, there are many amazing ongoing and upcoming initiatives that build on existing regional strengths to support FinTechs. However, difficultly in navigating these opportunities is forgivable, especially when starting out or running a business where the time to conduct such research is limited.

I was honoured to be a part of creating the North East cluster strategy with Whitecap Consulting [5], as well as authoring nine other regional analyses on UK FinTech [6], where regional opportunities were very apparent.  

So, where will I find the best opportunities?

Well, that depends on what best suits you. See below for a high level overview of what each key UK region has to offer, and scroll further for greater clarity on some of the resources these clusters provide.

UK FinTech Hubs

Figure 1 - UK FinTech Clusters

Collaborative networks

Collaboration isn’t just valuable for businesses, but essential. Collaboration is opportunity seeking, whether you are trying to raise capital, talk to your target audience, seek partnerships or enhance your industry understanding; collaboration stimulates ideas and opens doors. Each of the regions outlined in the infographic above have collaborative networks, hosting hundreds of events to date. These include: FinTech Scotland, FinTech Northern Ireland, FinTech North, SuperTech (West Midlands) and FinTech West. Together with Innovate Finance, they make up the FinTech National Network, connecting FinTech ecosystems across the UK and international markets, and working closely with the newly established CFIT to implement the national coordination strategy. Therefore, getting involved with one of these collaborative networks can also help you to unlock opportunities right across the UK.

In London, there are tech events almost daily, with dedicated FinTech events hosted by FinTech Circle, a FinTech network with 260,000+ FinTech stakeholders, and Innovate Finance, who host an annual global summit boasting over 2,000 attendees each year.

If growing your network is a priority, I suggest checking out what events are being hosted by the FinTech National Network members, most of which are free to attend!

Hubs and programmes

Collaboration is also stimulated through digital hubs, shared workspaces which often provide additional support such as startup incubation and accelerator programmes. There are over 400 incubators and 300 accelerators in the UK, supporting 19,000 unique businesses a year [7]. These support programmes are becoming more sector specialised, providing even more opportunity for FinTechs. Dedicated FinTech hubs include: 

There are many programmes all over the country, and whilst London has a strong concentration of those dedicated to FinTech, there are hundreds of tech focused hubs and programmes which may be more affordable outside the capital, such as:

There are a combined 700 incubator and accelerator programmes across the UK, and thousands of co-working opportunities. Feel free to reach out if you need additional support in finding what’s right for you.

Funding

Proximity to investors matters. Venture capital is a relationship based business and therefore, proximity to investors is advantageous when looking to raise capital as it permits stronger relationship building opportunities through face to face contact. Furthermore, being in a city densely populated with investors increases your chance of finding opportunities. Most private investment opportunities can be found in London, home to 94% of all UK venture capital deals. Of the 381 venture funds with known UK headquarters, 302 (79%) are located in London. Outside London, the North West is the most popular spot for funds, with 19 [8]. Examples of UK funds known to invest in FinTech include: 

Although proximity is advantageous, funds have become more open minded about investing in companies based further away due to the adoption of remote working during the pandemic. These companies may even be seen as more opportune due to the lower operating costs of being based outside the capital. Therefore, it is still worth investigating opportunities with London based funds if you are based outside the city.

Another action that has come out of the Khalifa Review of UK FinTech is the creation of The FinTech Growth Fund, investing in growth stage UK FinTechs, with a goal of supporting the continued development of the UK FinTech ecosystem. With backing from Barclays, NatWest, Mastercard, London Stock Exchange Group and Peel Hunt, the fund will predominantly invest between Series B and pre-IPO with the first deployment of capital scheduled for Q4 2023. However, the likelihood of accessing this capital is low as the fund is looking to make investments of £10m - £100m just 4 to 8 times per year, and already have a strong pipeline of identified opportunities. Nevertheless, it points towards more national FinTech investment activity over the long term.

In the shorter term, venture capital and private equity have been struggling due to the increased cost of debt. As a result, grants are even more worth looking into. A grant is a gift to a company that does not need to be paid back as the success of the business has positive externalities aligned with the grant issuer. There are many types of grants, including ones that are dependent on where your business is located. Some that may be applicable to you include: 

(If a link takes you to an expired grant, there may be a new round available).

Winning grants can be difficult, so make sure to fully understand how your business addresses a need, have clarity on how the grant will be used and being able to articulate an ESG benefits also improves your chances of winning. If you need support finding or winning debt, equity or grant funding, please get in touch.

Access to talent

The labour market experienced a lot of stress from the global pandemic, particularly in the tech sector, exacerbating a pre-existing shortage of talent. As a result, one of the four focusses of the Kalifa Review strategy is to improve accessibility to skills and talent by enhancing access to global talent, retraining and upskilling, and growing the talent pipeline. Some of these initiatives include:

  • The Tech Nation visa allows founders and employees with technical or business backgrounds in any tech sub-sector, such as FinTech, to work in the UK for up to 5 years. This initiative has no regional eligibility criteria and aims to improve access to global talent. 
  • There are now 24 University courses with FinTech, financial technology or crypto in its title, helping to retrain, upskill and maintain a talent pipeline for UK FinTechs.
  • BMet College has published a FinTech Skills Framework, described as a ‘Blueprint for Further Education in Birmingham and the West Midlands’.

There will be many more initiatives on talent in the coming years, as along with a lack of funding, a lack of talent is consistently voiced as a major limitation to FinTech growth.

London is the best UK city to access graduate talent, with 17 universities that graduate around 130,000 students each year, including the highest number of top 100 universities globally, level with Los Angeles. It is also one of the best cities to access experienced talent with a pool of over 4.3m employees, 1.3m working in financial services, tech and professional services [9]. However, salaries in the capital are 20% higher than the UK average [11].

The North East and Leeds City Region have two of the most cost-effective workforces in the UK, with salaries averaging at £23,414 and £24,065 respectively, compared to £32,400 in London. Salary disparities are also due to differing industry specialisms and organisational sizes, therefore the disparity for tech works will be less than what is reflected by these figures.

Location remains an important factor of any business, tapping into the unique set of resources one location has to offer over another, be it cluster collaboration, dedicated workspaces or access to talent or funding. This is especially true in FinTech right now, with many more initiatives in the near future. Please feel free to reach out for further information and support on proximity advantages and FinTech ecosystems.

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