Agenda item

Alderman Tim Levene gave a presentation on ‘The UK’s Fintech Opportunity’ highlighting that this had formed one of the key pillars of work for both the Lord Mayor and Chair of Policy in recent years.

Alderman Levene stressed that the UK was a real leader in this area, with the industry currently employing approximately £76,000 people and contributing 11 billion to the economy. He added that for every £1 invested in the European Fintech ecosystem, more than 50% of this originated from the UK. In terms of funding globally, the UK ranked second with over 10% of all global fintech financing hailing from here.

The Alderman went on to speak about how collaboration was also key in terms of being a global leader and the importance of a supportive government, supportive set of regulators and a positive and constructive central bank which the UK had in the Bank of England. These collaborators had worked alongside and underpinned the funding requirements to really enable the UK to thrive across several governments.

It was estimated that, over the next few years, around 50,000 new jobs would be created in the industry making it a significant employer not just in the UK but in the City of London in particular. In 2015/16 fintech companies were surrounding the City in its fringe boroughs but an increasing amount had moved into the Square Mile in the past 2-3 years and there was a clear opportunity to attract more in the coming years.

The Alderman went on to focus on market trends, remarking that market sentiment continued to be relatively challenging despite the fact that there continued to be a rather significant market opportunity. In terms of listed fintech total market capitalisation, it was highlighted that ‘payments’ still dominated. There had been some significant drops, such as in insurance. An unprecedented flow of money had come into the European market and the UK Market in particular in 2021/22 making these real anomaly years with the Alderman commenting that too much money had come in too quickly and to too many companies at the wrong valuations. This capital was still being ‘unwound’ at present. The market had now reverted to where it had been in 2018/19. Fundamentally, a strong, established market still existed in the UK with London being the dominant part of this.

The Alderman underlined that, when looking at the market, this was one of the biggest industries in the world with the margin and profitability indicating an extremely attractive market to approach. He reported on the ‘maturity cycle’ highlighting that fintechs had around 3% penetration of the global market in 2024, indicating that there was still a long way to go. There was an estimated $300 billion of revenue from global fintech in the global market at present with this predicted to grow to over $1.5 trillion in the course of the next 5-6 years illustrating this huge market opportunity. The Alderman spoke on how regulation was a significant inhibitor of innovation with things only slowly opening up. Looking at those markets that the City tended to focus on, payments was the most penetrated by disruptors but again only by a tiny percentage here and smaller still in terms of asset management, lending an insurance.

The Alderman went on to explain how and why fintechs were driving change, stressing that they tended to serve consumers and businesses with better propositions and greater efficiencies at lower cost. It was recognised that, as the sector was emerging, it was inevitably coming under more scrutiny with 2023 in particular seeing a year of heightened regulation and enforcement.

The Alderman also made reference to the hype cycle highlighting how the sector had taken time to emerge, develop and evolve. He also highlighted how incumbents were the key advocates of the fintech ecosystem through direct investment, acquisition and partnership with a big shift in terms of the engagement of traditional financial services over the past 3 years. It was predicted that there would be continued collaboration over the years.

In concluding, the Alderman summarised that 2023 had seen a recalibration and predicted that 2024/25 would be a period of great market opportunity given the market rebalance and this was expected to continue over the next decade with the UK positioned as a global leader. He cautioned, however, against complacency, highlighting that France had made extraordinary progress in terms of transforming the French tech economy.

The Chairman thanked the Alderman for his presentation and invited questions from the wider Committee.

An Alderman questioned how the City of London was joining with other centres such as Edinburgh, Manchester, Liverpool and Birmingham to see growth across the whole of the UK. Alderman Levene highlighted that Innovate Finance (seeded by the City of London Corporation amongst others) had played a key role in this respect, working very closely with Fintech North, Fintech Scotland, Fintech Wales and Fintech Northern Ireland to represent the UK fintech community and encourage more joined-up thinking. The last three of four years had seen the emergence of clusters of fintech excellence outside of London. He commented that an outlier success story was key in terms of transforming a City and driving its success given their tendency to recycle and pollinate the sector.

An Alderman commented on the breadth of imagination and vision that fintech companies have. It was noted that there was a real challenge in terms of emerging economies such as Brazil and India who appeared to be able to ‘scale up’ extraordinarily quickly but also suggested that a lot of what was happening here was comparatively basic and, in many cases, being developed to respond to the absence of normal banking structures. It was highlighted that the Mansion House Programme Team were very conscious of this as a real priority with regional visits for the Lord Mayor to places such as Edinburgh and Belfast almost always including visiting their tech hubs. The Alderman went on to question the role of generative AI in the fintech space in the years to come. Alderman Levene recognised that this was a huge market opportunity with learning around the use of generative AI happening at an unprecedented pace. It was recognised that portfolio companies were investing in this and had been for several years and deploying the use of generative AI which was evidenced by the increase of things such as chat bots for customer support. The Alderman noted that there were also regulatory challenges in this arena given that it represented both a threat and an opportunity for industries such as asset and wealth management. The use of generative AI was something that was being watched very carefully and an area in which the French in particular appeared to be forging ahead. It was clearly an area which, going forward, the City of London would need to engage with and understand a lot more.

Alderman Levene stated that when talking about UK fintech this was not just about building UK businesses to serve the UK but also about building global businesses from the UK. He cited the example of ‘Tide’, an SME banking platform recently launched in India which had already attracted over 150,000 businesses, as world-class UK technology being exported very successfully.

In response to a question returning to the issue of market penetration Alderman Levene stated that it could be argued that every financial service was underpinned by fintech in some way. Whilst it was given a clear definition and delineation some companies such as JP Morgan would argue that they spend more on technology than anyone else and, as such, should be regarded as a tech led bank. Whilst there was still much discussion in terms of defining a ‘fintech’ company, it had been an important branding point for the industry and for UK PLC. In terms of the importance of fintech relative to other tech-led industries, fintech had been the UKs leading tech centre in terms of funding. That being said, climate tech had overtaken this in the past year. However, climate tech did also intersect with fintech and health tech and fin tech would clearly continue to be one of the most important tech led industries in the UK over the next decade and beyond.

An Alderman spoke about insure tech and stated that the business she was in considered itself as a tech led law firm. She went on to query whether there was something that the Court of Aldermen or the wider City Corporation could play an active role in bringing together various sectors to look at learning points and solutions across the board as opposed to just funding. The Deputy Chairman referenced the two day Innovate Finance event to be held later in the month highlighting that all Aldermen were invited and could seek to influence and better understand these kinds of discussions in this forum. It was highlighted that partner organisations such as these could deliver aspects of the City Corporation’s agenda far more efficiently and in a more targeted way and all Aldermen, especially those with specialist knowledge, should seek opportunities to work closely with these partner organisations.

The Committee thanked Alderman Levene for an extremely interesting and informative presentation.